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Consultant advises: Change retirement age to 65

Published: 
Sunday, March 18, 2018
Michael Falk PICTURE ANDRE ALEXANDER

The ideological debate remains.

Should there be national health and education systems that would protect the less fortunate in society?

Should governments raise the age of retirement as many countries across the world are grappling with the aging factor?

Should robots play a greater role in the future as there are fewer workers due to societies aging?

Michael Falk, partner, Chapter of Investment Professionals (CFA) and consultant spoke on Monday night at a seminar hosted by CFA T&T at the Courtyard by Marriott hotel, Port-of-Spain.

The American investment consultant discussed retirement, healthcare and education—the subject matter of his latest book, or monograph as he chose to call it.

It is titled “Let’s All Learn How To Fish…To Sustain Long-Term Economic Growth.”

The book’s foreword, written by Laurence B Siegel, director of research at the CFA Institute Research Foundation, said the book should not be treated as a “left-wing nor right-wing treatise” as the author advocates for a social safety net and, at the same time, calls for self reliance and not over dependence on the State.

Falk said the reason for social policies is to provide a safety net.

“It is to protect those of us who fall, to protect those of us who are unable to continue to live our lives at some level. When we think of safety nets we usually think of two parts of the population, the very old and the young.”

At the same time, he said, a safety net should not be an excuse for people to be overly dependent on the State.

“Good policies have both safety nets and trampolines. Those who are able to bounce back from whatever it was that took them down. What we need to do is to alter the incentives so that we can get people out of the nets, but we don’t want to weaken the nets.”

National insurance

Falk said that T&T nationals needs to increase contributions to the National Insurance System if the system is to remain sustainable in the future.

He was responding to a question from the audience on the diminishing ability of the National Insurance Board (NIB) to finance the national insurance system over the next few years.

According to a T&T Guardian report in November 2017, the NIB fund could go broke in the next 12 years because it is out of alignment with no long term sustained initiatives to generate rates of higher return.

The fund now stands at some $25 billion but, to be sustainable it needs to be topped up to some $75 billion so as to ensure efficient payments could be made in the coming years.

“There’s only a few levers that you can pull. There’s a very simple pension equation which is C+I=B. Contributions plus investment performance equals benefits. Contributions will have to go up and benefits will have to go down. That is clear as I can make it. Contributions going up means taxes go up. T&T needs to reduce the benefits and increase the contributions and people need to age to get it,” Falk said.

He also suggested a means testing to decide who needs state support and those who can support themselves after a certain age.

He admitted that he does not know enough about the intricacies about the local NIS scheme to say what should be the ideal contribution and benefit rates.

“If we were to look at T&T nationals over time and different routes, what’s the level of fixed cost exposure to the average T&T national when they retire? We want to immunise that. Because not everyone gets rid of the mortgage, not everyone gets rid of the car payments. They probably need electricity, they probably need food. That’s where to start the dialogue.”

He also spoke about T&T’s falling birth rate.

“T&T fertility is about 1.5 births per female on an average. 2.1 is the alleged replacement rate of birth so what that means is that being under 2.1, you’re shrinking the size of your society. Overtime, T&T’s society is shrinking.”

Touching on the retirement age debate that is going on in T&T right now, he said the retirement age should be over age 65 in T&T.

Falk advocates a national pension system that is run by the State, but done in an efficient way.

“You want to make the economics work, you have to raise the retirement age right now. I don’t mean in 10 years.”

He then recommended a two-tier system, where white collar workers would retire at age 65 but blue collar workers would retire at age 60.

“For those of us who work with our brains and our minds, we have to work a lot longer. For the people who are labourers, who bust their backs, they should be able to retire younger, by at least five years. This would much more fair.”

He said there is a disparity in the life expectancy between blue collar workers are tend to be poorer and the knowledge workers who tend to be better off.

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