Caribbean Pension Systems Face Challenges But Solutions Are Within Reach, IDB Report Says

Pension systems in the Caribbean will run out of funds within the next 10 to 15 years unless urgent reforms are implemented to ensure their sustainability, according to a new publication by the Inter-American Development Bank (IDB).

Caribbean countries can build more resilient safety nets for their aging populations by addressing administrative inefficiencies, improving investment strategies, and considering adjustments to retirement age, among other measures, according to the report titled "Building Resilient Safety Nets in the Caribbean: Future-Proofing Retirement Incomes." The report is part of IDB's Caribbean Economics Quarterly report series which focuses on the economic performance of The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago.

This edition provides an in-depth analysis of the key design features of old-age pension programs in the six Caribbean countries and addresses the critical challenges and opportunities for reforming old-age pension programs in the Caribbean.

As demographic transitions lead to a larger share of elderly populations, countries worldwide face significant challenges in maintaining sustainable retirement incomes. These challenges are even more pronounced in the Caribbean, marked by high rates of out-migration. At least half of the Caribbean countries analyzed are already running fiscal deficits and struggling under the weight of their sovereign debt. Adding pension liabilities into this fiscal mix further strains already-stretched budgets.

To mitigate or reverse the depletion of national insurance schemes, the IDB's policy recommendations include:

1. Administrative Efficiency: Caribbean National Insurance Schemes can optimize administrative costs. For example, The Bahamas' administrative expenses are five times higher than Barbados', indicating room for improvement.
2. Adjusting Parameters: Aligning contribution income and benefits is crucial. Barbados raised its retirement age from 65 to 67 in 2018, with plans to increase it to 68 by 2034.
3. Investment Portfolios: Investment income should play a larger role. Diversifying with more foreign-owned assets can improve risk-return profiles, as suggested for The Bahamas and Barbados.
4. Design and Capacity: Enhancing the capacity of National Insurance Schemes and leveraging digital tools can help manage demographic shifts and financial strain. The IDB's project, "Social Insurance in the Caribbean: The Time has Come", aims to explore potential reforms.

"The demographic shifts in the Caribbean present both challenges and opportunities. By implementing strategic reforms and improving the efficiency of our pension systems, we can ensure that our elderly population enjoys a secure and dignified retirement. This publication underscores our commitment to building resilient safety nets that will protect future generations.", said Anton Edmunds, General Manager for IDB's Caribbean Country Department.

Caribbean Economics Quarterly is a publication dedicated to advancing economic understanding of Caribbean realities through the lens of The Bahamas, Barbados, Guyana, Jamaica, Suriname and Trinidad and Tobago. With a commitment to fostering development, this IDB report continues to be a trusted resource for policymakers, academia, and businesses. Previous editions are available here.