Contributory pension plan
GEORGE ALLEYNE Wednesday, March 16 2011
Government and the various organisations representing public sector monthly paid employees should seek to work out a contributory pension plan under which relevant employees would receive pension benefits proportionate to their contributions.
Under the plan which would replace the existing system by which the State wholly funds public sector pensions, contributions deducted from employees’ salaries would be matched by Government. Deductions would be a fixed percentage of salaries with public sector personnel reserving the right to increase their contributions up to an agreed upon maximum.
A major portion of the monthly contributions should be invested in companies listed on the Trinidad and Tobago Stock Exchange, the companies either wholly or partly owned by the State, for example, National Enterprises Limited and Point Lisas Industrial Port Development Corporation.
The current international economic downturn has exposed, inter alia, the built in risks in continuing with a non-contributory pension scheme in the public sector. The downturn has affected not only Trinidad and Tobago but such countries, for example, as Greece. The Trinidad and Tobago Government’s payout of public sector pensions constitutes a not insubstantial portion of the country’s annual Expenditure.
The implementing of a contributory pension plan would, over a period of time, relieve the burden on the Treasury; allow for the utilisation of funds for social benefits and for needed construction projects such as new hospitals and schools and/or urgent repairs and upgrading of existing ones and for a greatly improved salary structure and pension benefits.
Under the plan which this column envisages a company would be established and a Board appointed to direct its affairs, with a representative of the Government as its Chairman. The Board would set and implement policy positions, including investment policies and the setting of pension levels. I should point out though that for some time, following on the establishment of a contributory pension plan Government would have to continue to fund all of the benefits to be paid out. Government’s direct funding, however, would gradually decrease as income earned on investments begins to flow in appreciable quantities. Ultimately, pension benefits could be wholly paid out of the returns on investment.
In the meantime, the compulsory retirement age for public sector employees could be retained as the age at which optimum pension payments would start. Where this is 60 years, then persons retiring at, say, age 55 the existing optional retirement age, for example, for public servants and teachers, or at age 50, the age at which such employees may retire with permission, can be retained with one marked difference.
Such retirees, and understandably so, would be eligible for proportionately smaller pensions, the formula to be worked out, initially, between Government, represented by the Chief Personnel Officer, and the relevant service organisation. As the contributory pension plan’s benefits from its investments strengthen then this (the formula) would become a Board decision. Meanwhile, I should like to suggest that benefits under the proposed pension plan, in the event of the early deaths of recipients or potential recipients, should be available to spouses and relevant children who are under the age of majority.
I have been advancing the argument of a contributory plan for decades.
Indeed such a plan should have been sought and put into effect ever since Trinidad and Tobago achieved Ministerial Government in 1950.
Since then, the country has had four distinct Administrations — the People’s National Movement; the National Alliance for Reconstruction, the United National Congress and today the People’s Partnership Government. In that period our economy has been hit by the recession of the 1980s, the Asian financial crisis of the 1990s and today’s global economic downturn.
We should have long sought to follow the lead of the United States, which in 1935, at the height of the Great Depression of 1929-1939, passed into law its far reaching Social Security Act.
Meanwhile, this country’s trade unions which represent private sector workers should move to have a broad based pension fund plan through which workers could invest in the companies in which they work. While this is already in effect in some companies, for example commercial banks, it should, nonetheless, be a nationwide effort.
In the United States share ownership by employees was actively encouraged through scores of companies actually guaranteeing the loans of workers, who wished to invest in the companies or corporations which employed them. For the record participating companies enjoyed tax benefits. Perhaps the same thinking of employees as shareholders of their companies, through loan guarantees, could be similarly encouraged in Trinidad and Tobago. But I have strayed.
A contributory pension plan for public sector employees would be a plus for both the workers themselves and Trinidad and Tobago’s economic position and growth.