## 1.  Portfolio Allocation and Investment Returns of NIS Funds

## Source details

**Canonical URL:** [1.  Portfolio Allocation and Investment Returns of NIS Funds](https://www.imf.org/-/media/files/publications/cr/2024/english/1eccea2024002.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2024/english/1eccea2024002.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2024/english/1eccea2024002.pdf.json)

---

### Introduction: fiscal and demographic pressures
- Defined benefit pension systems in the ECCU are under strain due to design weaknesses and tepid economic growth.
- Key pressures:
  - Rapidly ageing population: the old-age dependency ratio is projected to accelerate dramatically starting in 2025 and, "by 2083, it would exceed 0.5".
  - Low contributions relative to payouts and slowly growing contribution base exacerbated by frequent economic and natural disaster shocks.
  - Public debt is elevated, "above the regional target of 60 percent of GDP", increasing risks that governments may need to cover pension shortfalls with higher taxes or reduced investment.
- Key recommendations:
  - Swift adoption of further comprehensive reforms (parametric and non-parametric).
  - Improve coverage, investment strategy, administrative efficiency, and transparency.
  - Establish automatic adjustment mechanisms.

### Overview of ECCU pension architecture and recent reforms
- Three components:
  - National insurance scheme (NIS) — largest; contributory; long-term benefits (pensions) are on average 80 percent of NIS spending.
  - Public Sector Pension Scheme (PSPS) — non-contributory for civil servants; funded from the budget; estimated to cost around 2 percent of GDP annually in each of the three countries with available data.
  - Pillar zero — noncontributory support to poor elderly as part of social assistance (generally small amounts).
- Coverage and reforms:
  - NIS coverage among formal sector employees is generally around "80-  90 percent".
  - Only four ECCU-6 countries require mandatory participation of self-employed.
  - Recent parametric reforms (examples):
    - ATG, GRD, and VCT are raising contribution rates and prolonging vesting periods to 15 years.
    - All countries except KNA have approved reforms to raise retirement age to 65 but generally allow early retirement at 60.

### NIS financial positions and sustainability (actuarial findings and projections)
- Transparency and actuarial reporting:
  - Actuarial reviews and annual reports are published often with long delays; last publicly available actuarial report for St. Lucia (LCA) dated "2003".
- Reserves (latest published actuarial review data):
  - Antigua and Barbuda: Reserves "15.5 percent of GDP" (Latest published actuarial review year: 2015; Year of latest available actuarial review: 2017).
  - Dominica: Reserves "30.0 percent of GDP" (Latest published actuarial review year: 2014; Year of latest available actuarial review: 2020).
  - Grenada: Reserves "31.9 percent of GDP" (Latest published actuarial review year: 2018; Year of latest available actuarial review: 2021).
  - St. Kitts and Nevis: Reserves "72.2 percent of GDP" (Latest published actuarial review year: 2021; Year of latest available actuarial review: 2021).
  - St. Lucia: Reserves "55.2 percent of GDP" (Latest published actuarial review year: 2003; Year of latest available actuarial review: 2015).
  - St. Vincent and the Grenadines: Reserves "18.3 percent of GDP" (Latest published actuarial review year: 2021; Year of latest available actuarial review: 2019).
- Timing when expenditures surpass contribution or total income, and reserves exhaustion:
  - Antigua and Barbuda:
    - Year expenditures surpass contribution income: "2022"
    - Year expenditures surpass total income: "2028"
    - Year when reserves are exhausted: "2035"
  - Dominica:
    - Year expenditures surpass contribution income: "2021"
    - Year expenditures surpass total income: "2051"
    - Year when reserves are exhausted: "2063"
  - Grenada:
    - Year expenditures surpass contribution income: "2016"
    - Year expenditures surpass total income: "2022"
    - Year when reserves are exhausted: "2053"
  - St. Kitts and Nevis:
    - Year expenditures surpass contribution income: "2015"
    - Year expenditures surpass total income: "2024"
    - Year when reserves are exhausted: "2040"
  - St. Lucia:
    - Year expenditures surpass contribution income: "2018"
    - Year expenditures surpass total income: "2035"
    - Year when reserves are exhausted: "2051"
  - St. Vincent and the Grenadines:
    - Year expenditures surpass contribution income: "2016"
    - Year expenditures surpass total income: "2021"
    - Year when reserves are exhausted: "2060"
- Actuarial metrics presented:
  - Actuarial balance (T,60)/(GDP_T) = Current reserves_T + PV(contributions_T,T+60) + PV(investment income_T,T+60) − PV(benefits_T,T+60) − PV(administrative expense_T,T+60) all divided by GDP_T.
  - Reserves_T,60/GDP_T+60 = Current reserves_T + contributions_T,T+60 + Investment income_T,T+60 − benefits_T,T+60 − Administrative expense_T,T+60 all divided by GDP_T+60.
- Net implicit debt over 60 years:
  - Most burdensome in KNA and lowest in DMA; DMA’s estimated reserves of "-46 percent of GDP in 60 years" implies an annual fiscal burden of "close to 1 percent of GDP".

### Contribution rates and the general premium gap
- Current contribution rates:
  - Average contribution rate of ECCU-6: "13.7 percent".
  - Average in EMEs: "15.3 percent".
  - Average in OECD: "17.8 percent".
- Observations:
  - Current contribution rates (including phasing-in of approved reforms) are below the General Average Premium (GAP) needed to fully cover expenditures over a 60-year period.
  - The "general premium gap" is largest in KNA, followed by GRD, and ATG.
- Policy implication:
  - Without further reforms, abrupt increases in contribution rates or reductions in payments would be necessary once reserves approach depletion.
  - Projected PAYG rates when reserves are depleted are well above current contribution rates in all ECCU-6, implying large future adjustment needs.
  - Early reforms allow smaller, gradual adjustments and improve intergenerational equity.

### Retirement age, early retirement options, and automatic adjustments
- Statutory retirement ages and reforms:
  - After phasing in approved reforms, statutory pension ages in all ECCU countries except KNA will be "65", aligned with OECD average.
  - KNA’s statutory pension age remains low (specific KNA statutory age reported earlier in tables as "62" current statutory retirement age in Table 2).
- Early retirement and equity:
  - DMA, GRD, LCA, and VCT have an early retirement option under the NIS (often at "60").
  - PSPS statutory retirement ages for DMA, GRD, KNA, and VCT are significantly lower than under NIS, raising equity concerns.
- Missing mechanisms:
  - None of the ECCU countries link statutory retirement age to life expectancy; an automatic adjustment mechanism is missing.

### Benefit rules, replacement rates, and accrual structure
- Generosity:
  - Maximum replacement rates: "60 percent" in all but ATG (ATG exception noted).
  - Many public sector workers receive dual benefits; combined maximum replacement rates can exceed "100 percent" (examples: "greater than 110 percent in GRD" and "127 percent in VCT").
- Accruals:
  - Accrual rates are front-loaded; the accrual rate during the vesting period is high compared to EME and OECD averages.
  - Front-loaded accrual rates give very high rates of return to persons with short wage histories and may discourage longer formal sector careers.

### Policy priorities and recommended reforms
- Implement further comprehensive parametric and non-parametric reforms promptly to avoid abrupt future adjustments.
- Increase contribution rates toward the GAP over time while managing labor market effects; avoid overly large increases in any single parameter.
- Align statutory retirement ages with life expectancy or establish automatic adjustment mechanisms.
- Reduce excessive generosity in benefit rules:
  - Reconsider maximum replacement rates and front-loaded accrual structures.
  - Address dual benefits for public sector workers to improve equity.
- Improve transparency and timeliness of actuarial reviews and public reporting.
- Enhance coverage by mandating participation for self-employed and addressing informality.
- Improve investment strategy, administrative efficiency, and governance of NIS funds.

### Investments of NIS funds (summary)
- ECCU NIS portfolios have a low share of foreign investments compared to other small states; domestic concentration is high.
- Consequences:
  - High exposure to domestic and regional risks (natural disasters, tourism-related shocks).
  - Domestic investments concentrated in deposits, government paper, and other public sector instruments, exposing NIS to sovereign risk and rollover risk as reserves decline.
- Asset allocation observations:
  - Shares of equities and bonds are low; share of cash is high.
  - Cash provides safety and liquidity but limits returns.
- Recommended adjustments:
  - Increase foreign investments to shift from cash to global bonds and, where appropriate, global equities.
  - Tailor equities vs bonds to the investment horizon:
    - Raise allocations to global equities for long-horizon NIS (DMA and LCA).
    - Favor global bonds for short-horizon NIS (GRD and VCT).
  - Diversify by geography and sector; reduce reliance on illiquid, disaster-exposed real estate.

### Implementation examples and actuarial outcomes (selected)
- Examples from actuarial analyses and approved reform packages:
  - Increasing pensionable age to 65 can reduce long-term pay-as-you-go rate from 30 percent to under 25 percent (ATG actuarial report).
  - Increasing contribution rate to 15 percent alone can postpone reserve depletion by about 5 years (GRD actuarial report).
  - A package combining increase in pensionable age to 65, increase in contribution rate, revised early retirement, higher minimum required contributions, and higher minimum pension is estimated to postpone reserve depletion by 20 years (latest approved package in 2023).
  - KNA: increase in pensionable age to 65 combined with lowering accrual rate and increasing contribution rate will postpone reserve depletion by 10 years.
  - LCA: annual increase of contribution rate by 0.25 percent until reaching 17.05 in 2051 will postpone reserve depletion from 2050 to 2066.
  - VCT staff assessment: increase in contribution rate to 15 percent combined with benefit cuts for new pensioners and linking retirement age to life expectancy will postpone reserve depletion outside of the 60-year projection horizon but will not eliminate actuarial imbalance.
- Statutory change examples:
  - Statutory retirement age increased from 60 in 2016 to 64 in 2023, will be 65 in 2025; minimum contribution requirement increased from 500 weeks in 2016 to 700 in 2023, will be 750 in 2025; employer and employee contribution rate increases specified for 2025.
  - Various countries have phased increases in pensionable age, vesting periods, accrual rate reductions, and planned increases in contribution rates through 2031.

*Source: INTERNATIONAL MONETARY FUND.*

### The thresholds for the minimum contributory pension and for the insurable wage (chapter summary)
- Coverage:
  - Minimum contributory pension defined as the smallest amount any participant of the NIS could receive after reaching statutory retirement age or meeting minimum contribution requirements.
  - ECCU countries’ minimum contributory pensions are above the LAC and EME averages.
  - The insurable wage threshold is adequately high in the ECCU; a large share of contributors have wages fully covered by NIS.
  - Coverage metrics with room for improvement: contributor ratio and pensioner ratio.
  - ECCU coverage is above the regional average but below EME (on pensioner ratio) and OECD averages (on both contributor and pensioner ratios).
  - KNA, LCA, and VCT do not require participation of the self-employed.
- Administrative efficiency:
  - Varies across ECCU countries; metrics: ratio of administrative costs to contribution income and to contribution income plus benefits.
  - Relatively high administrative costs reflect small system size.
  - Scope for KNA, LCA, and VCT to converge to better practices in ATG, DMA, and GRD.
  - Target: reduce administrative costs to 10 percent of contributions in the medium term by modernizing systems.
  - Potential gains from regional administrative sharing and harmonization; increase transparency and portability under CARICOM Social Security Agreement.
- Investments (see prior section for details and recommendations).
- Policy priorities highlighted:
  - Increase contributions toward EM and OECD averages (16-18 percent).
  - Rationalize benefit rules (uniform accrual rate example: 1.2 percent; career-average wage reference over 25-40 years).
  - Consider freezing pension benefits over the medium term for older generations, then shift to inflation-linked adjustments.
  - Improve retirement age rules (eliminate or tighten early retirement; link retirement age to life expectancy, e.g., increase automatically by two-thirds of life expectancy gains at age 65).
  - Expand coverage (mandatory self-employed contributions in KNA, LCA, VCT; consolidate collections and improve digitalization).
  - Investment strategy: maximize risk-adjusted returns, diversify, increase global equities for long-horizon NIS (DMA and LCA), increase global bonds for short-horizon NIS (GRD and VCT).
  - PSPS reform: close PSPS to new entrants expeditiously, align PSPS retirement age with NIS, and consolidate PSPS and NIS pensions.
  - Establish automatic adjustment stabilizers in Pension Acts to trigger coordinated benefit and funding adjustments when thresholds are met.
- Actuarial outcomes and reform impact examples provided (see Implementation examples above).

*Source: 1eccea2024002 - 14.      The thresholds for the minimum contributory pension and for the insurable wage.*

### Youth and female workers: participation, unemployment, and policy implications (chapter summary)
- Participation and unemployment:
  - Youth (aged 15-24) participation rates lower than total working age population in all countries; young female workers had the lowest participation rates.
  - Female labor force participation lower than male participation in all countries.
  - Youth unemployment higher than total unemployment; female unemployment tended to be higher than male unemployment.
  - Participation rate gap between men and women in ECCU countries is between 7 and 14 percentage points (pp); comparisons: LAC average 23pp, world average 26pp, and OECD average 15pp.
- Education, sectoral patterns, and gender pay gaps:
  - Higher education associated with higher participation and employment rates, especially for women in education and health sectors.
  - In some countries men with primary or less education have participation rates comparable to or higher than men with higher education, reflecting male-dominated sectors like construction and agriculture.
  - Gender pay gaps (St. Lucia examples):
    - Women are 8 percentage points less likely to participate than men with same observable characteristics.
    - Women with children under 5 are 3 percentage points less likely to participate than other women with same characteristics.
    - Unexplained gender pay gap in St. Lucia: 18 percent overall.
    - Unexplained pay gaps by education level in St. Lucia: 21 percent (primary), 21 percent (secondary), 8 percent (post-secondary non-tertiary), and 2 percent (tertiary).
- Pandemic impacts:
  - Formal jobs declined by an average of 8 percent across ECCU countries at the pandemic peak in 2020, compared to an average contraction in real output of 15 percent.
  - In 2021 real output began recovering, but formal employment continued declining (except in St. Vincent and the Grenadines).
  - Sectors most hit: hospitality, other services, transportation, and health and social workers.
  - Formal sector job losses were relatively more severe among male workers due to sectoral composition.
- Youth NEET, skills, and migration:
  - NEET increased during the pandemic; school closures and shutdowns disrupted learning and on-the-job training.
  - Employers report shortages of skilled workers due to emigration and skill mismatches.
  - Close to two thirds of ECCU citizens reside abroad; diasporas provided remittances that were a lifeline during the pandemic.
  - Policy opportunities: targeted education investments, partnerships with destination countries for legal pathways, reduce remittance transfer fees, develop return migration strategies, improve portability of pensions and social security benefits, strengthen CARICOM CSME skills certificate regimes.
  - Data gaps exist on diaspora characteristics and emigration motives.
- Labor market institutions, wages, and policy considerations:
  - Employment Protection Legislation exists with varying protection levels; unemployment insurance schemes are rare.
  - IMF analysis: reduce uncertainty about cost/duration of dismissal procedures; link EPL stringency to buildup of benefit systems such as UI.
  - Grenada: UI scheme started May 2023; covers 50 percent of salary for up to three months; eligibility set at 52 weeks of contributions.
  - Other jurisdictions introduced temporary pandemic support and are exploring formal UI options (Dominica and St Vincent and the Grenadines introduced temporary schemes).
  - Recommendation: gradually recalibrate toward a mixed EPL-UI approach; make EPL less stringent, simpler, and more predictable.
  - Minimum wages:
    - Minimum-to-average wage ratio among ECCU countries close to, or above, prevailing average of 55 percent for EMDCs and significantly higher than advanced country averages.
    - Empirical studies broadly advocate a ratio between 25 and 50 percent of the average wage (IMF 2016a).
    - At levels between 40–5  0 percent, further increases can have greater economic trade-offs, suggesting scope to recalibrate minimum wages.
  - Active Labor Market Policies (ALMPs) and social supports:
    - Targeted ALMPs can address gender and youth gaps and support transitions to UI.
    - Address child and elderly care constraints, increase vocational education and training, promote access to affordable childcare, parity between maternity and paternity leave, and support female entrepreneurs.
    - Condition ALMPs for UI qualification (training and job search) to reduce informal sector work while receiving UI.
- Data priorities:
  - Conduct and publish regular labor force surveys and censuses.
  - Collect detailed information on jobseekers and marginalized groups.
  - Measure informality to inform policy effectiveness.

*Source: Eastern Caribbean Currency Union — IMF staff report (chapter content provided).*

### 1.  Portfolio Allocation and Investment Returns of NIS Funds ________________________ 13

### 1.  Portfolio Allocation and Investment Returns of NIS Funds

### Introduction: fiscal and demographic pressures
- The financial sustainability of the defined benefit pension systems in the ECCU is under strain due to design weaknesses and tepid economic growth.
- Key pressures:
  - Rapidly ageing population: the old-age dependency ratio is projected to accelerate dramatically starting in 2025 and, "by 2083, it would exceed 0.5".
  - Low contributions relative to payouts and slowly growing contribution base exacerbated by frequent economic and natural disaster shocks.
  - Public debt is elevated, "above the regional target of 60 percent of GDP", increasing risks that governments may need to cover pension shortfalls with higher taxes or reduced investment.
- Key recommendations highlighted:
  - Swift adoption of further comprehensive reforms (parametric and non-parametric) to address design weaknesses.
  - Improve coverage, investment strategy, administrative efficiency, and transparency.
  - Establish automatic adjustment mechanisms.

### Overview of ECCU pension architecture and recent reforms
- Three components of ECCU pension systems:
  - National insurance scheme (NIS) — largest; contributory; long-term benefits (pensions) are on average 80 percent of NIS spending.
  - Public Sector Pension Scheme (PSPS) — non-contributory for civil servants; funded from the budget; estimated to cost around 2 percent of GDP annually in each of the three countries with available data.
  - Pillar zero — noncontributory support to poor elderly as part of social assistance (generally small amounts).
- Coverage and reforms:
  - NIS coverage among formal sector employees is generally around "80-  90 percent" in most countries.
  - Only four ECCU-6 countries require mandatory participation of self-employed.
  - Most countries implemented partial parametric reforms in the past decade; examples of approved changes:
    - ATG, GRD, and VCT are raising contribution rates and prolonging vesting periods to 15 years.
    - All countries except KNA have approved reforms to raise retirement age to 65 but generally allow early retirement at 60.

### NIS financial positions and sustainability (actuarial findings and projections)
- Transparency and actuarial reporting:
  - Actuarial reviews and annual reports are published often with long delays; last publicly available actuarial report for St. Lucia (LCA) dated "2003".
- Reserves (latest published actuarial review data):
  - Antigua and Barbuda: Reserves "15.5 percent of GDP" (Latest published actuarial review year: 2015; Year of latest available actuarial review: 2017).
  - Dominica: Reserves "30.0 percent of GDP" (Latest published actuarial review year: 2014; Year of latest available actuarial review: 2020).
  - Grenada: Reserves "31.9 percent of GDP" (Latest published actuarial review year: 2018; Year of latest available actuarial review: 2021).
  - St. Kitts and Nevis: Reserves "72.2 percent of GDP" (Latest published actuarial review year: 2021; Year of latest available actuarial review: 2021).
  - St. Lucia: Reserves "55.2 percent of GDP" (Latest published actuarial review year: 2003; Year of latest available actuarial review: 2015).
  - St. Vincent and the Grenadines: Reserves "18.3 percent of GDP" (Latest published actuarial review year: 2021; Year of latest available actuarial review: 2019).
- Timing when expenditures surpass contribution or total income, and reserves exhaustion (per Table 3):
  - Antigua and Barbuda:
    - Year expenditures surpass contribution income: "2022"
    - Year expenditures surpass total income: "2028"
    - Year when reserves are exhausted: "2035"
  - Dominica:
    - Year expenditures surpass contribution income: "2021"
    - Year expenditures surpass total income: "2051"
    - Year when reserves are exhausted: "2063"
  - Grenada:
    - Year expenditures surpass contribution income: "2016"
    - Year expenditures surpass total income: "2022"
    - Year when reserves are exhausted: "2053"
  - St. Kitts and Nevis:
    - Year expenditures surpass contribution income: "2015"
    - Year expenditures surpass total income: "2024"
    - Year when reserves are exhausted: "2040"
  - St. Lucia:
    - Year expenditures surpass contribution income: "2018"
    - Year expenditures surpass total income: "2035"
    - Year when reserves are exhausted: "2051"
  - St. Vincent and the Grenadines:
    - Year expenditures surpass contribution income: "2016"
    - Year expenditures surpass total income: "2021"
    - Year when reserves are exhausted: "2060"
- Actuarial balance and future reserves concepts presented:
  - Actuarial balance (T,60)/(GDP_T) = Current reserves_T + PV(contributions_T,T+60) + PV(investment income_T,T+60) − PV(benefits_T,T+60) − PV(administrative expense_T,T+60) all divided by GDP_T.
  - Reserves_T,60/GDP_T+60 = Current reserves_T + contributions_T,T+60 + Investment income_T,T+60 − benefits_T,T+60 − Administrative expense_T,T+60 all divided by GDP_T+60.
- Net implicit debt over 60 years is estimated most burdensome in KNA and lowest in DMA; even DMA’s estimated reserves of "-46 percent of GDP in 60 years" implies an annual fiscal burden of "close to 1 percent of GDP".

### Contribution rates and the general premium gap
- Current contribution rate context:
  - Average contribution rate of ECCU-6: "13.7 percent".
  - Average in EMEs: "15.3 percent".
  - Average in OECD: "17.8 percent".
- Observations:
  - Current contribution rates (including phasing-in of approved reforms) are below the General Average Premium (GAP) needed to fully cover expenditures over a 60-year period.
  - The "general premium gap" is largest in KNA, followed by GRD, and ATG.
- Policy implication:
  - In the absence of further reforms, abrupt increases in contribution rates or reductions in payments would be necessary once reserves approach depletion.
  - Projected PAYG rates when reserves are depleted are well above current contribution rates in all ECCU-6, implying large future adjustment needs.
  - Early reforms allow smaller, gradual adjustments and improve intergenerational equity.

### Retirement age, early retirement options, and automatic adjustments
- Statutory retirement ages and reforms:
  - After phasing in approved reforms, statutory pension ages in all ECCU countries except KNA will be "65", aligned with OECD average.
  - KNA’s statutory pension age remains low (specific KNA statutory age reported earlier in tables as "62" current statutory retirement age in Table 2).
- Early retirement and equity concerns:
  - DMA, GRD, LCA, and VCT have an early retirement option under the NIS (often at "60").
  - PSPS statutory retirement ages for DMA, GRD, KNA, and VCT are significantly lower than under NIS, raising equity concerns between private and public sector workers.
- Missing mechanisms:
  - None of the ECCU countries link statutory retirement age to life expectancy; an automatic adjustment mechanism is missing.

### Benefit rules, replacement rates, and accrual structure
- Generosity of benefit rules:
  - Maximum replacement rates: "60 percent" in all but ATG (ATG exception noted).
  - Many public sector workers receive dual benefits under NIS and PSPS; combined maximum replacement rates can exceed "100 percent" in some countries (examples: "greater than 110 percent in GRD" and "127 percent in VCT").
- Accrual rates and distributional effects:
  - Accrual rates are front-loaded; the accrual rate during the vesting period is high compared to EME and OECD averages.
  - Front-loaded accrual rates give very high rates of return to persons with short wage histories and may discourage longer formal sector careers.

### Policy priorities and recommended reforms (drawn from analysis)
- Implement further comprehensive parametric and non-parametric reforms promptly to avoid abrupt future adjustments.
- Increase contribution rates toward the GAP over time while managing labor market effects; avoid overly large increases in any single parameter.
- Align statutory retirement ages with life expectancy or establish automatic adjustment mechanisms.
- Reduce excessive generosity in benefit rules:
  - Reconsider maximum replacement rates and front-loaded accrual structures.
  - Address dual benefits for public sector workers to improve equity.
- Improve transparency and timeliness of actuarial reviews and public reporting to support monitoring and public buy-in.
- Enhance coverage by addressing mandatory participation for self-employed and labor market informality.
- Improve investment strategy, administrative efficiency, and governance of NIS funds to preserve reserves and returns.

*Source: INTERNATIONAL MONETARY FUND.*

### 14.      The thresholds for the minimum contributory pension and for the insurable wage

### 14.      The thresholds for the minimum contributory pension and for the insurable wage

### Coverage
- The minimum contributory pension is the smallest amount any participant of the NIS could receive after reaching statutory retirement age or meeting minimum contribution requirements.
- ECCU countries’ minimum contributory pensions are above the LAC and EME averages.
- The insurable wage threshold (also the ceiling for average earnings used to calculate benefits) is adequately high in the ECCU, with a large share of contributors having their wages fully covered by NIS.
- Coverage metrics with room for improvement:
  - Contributor ratio: share of working-age population contributing to the pension scheme.
  - Pensioner ratio: share of elderly population claiming pension benefits.
- ECCU coverage:
  - Above the regional average but below EME (on pensioner ratio) and OECD averages (on both contributor and pensioner ratios).
  - Lower coverage ratios likely attributable to higher unemployment and informality, and lower labor force participation.
- Country-specific participation rules:
  - In KNA, LCA, and VCT, participation of the self-employed is not required; making participation mandatory would increase coverage, reduce informality, and reduce old-age poverty.
- Suggested operational improvements to increase coverage:
  - Consolidate data collection between the NIS and tax authorities to strengthen compliance.
  - Digitalize records to improve efficiency and user experience.
  - Reduce the size of the informal sector.

### Administrative efficiency
- Administrative efficiency varies across ECCU countries.
- Metrics used:
  - Ratio of administrative costs to contribution income.
  - Ratio of administrative costs to contribution income and benefits.
- Relatively high administrative costs reflect small system size.
- Scope for KNA, LCA, and VCT to converge to regional better practices in ATG, DMA, and GRD to create savings.
- Modernization and convergence to international best practices recommended to improve performance.
- Targets and regional coordination:
  - Scope to reduce administrative costs to 10 percent of contributions in the medium term by modernizing administrative systems.
  - Potential gains from combining some social security administrative elements regionally, sharing administrative structures, and harmonizing system design.
  - Increase transparency by timely publishing actuarial reports and making government review of actuarial-recommended reforms legally binding.
  - Enhance portability of pension rights, building on the existing CARICOM Social Security Agreement.

### Investments of NIS funds
- ECCU NIS portfolios have a low share of foreign investments compared to other small states; ECCU average share of foreign investments is much lower than in small and mid-sized countries in Latin America and Europe.
- Consequences of high domestic concentration:
  - High exposure to domestic and regional risks (e.g., natural disasters, tourism-related shocks).
  - Domestic investments concentrated in deposits, government paper, and other public sector instruments, exposing NIS to sovereign risk.
  - With reserves projected to start declining under current policy, government exposed to rollover risk.
- Asset allocation observations:
  - Shares of equities and bonds in ECCU NIS assets are low compared to international benchmarks; share of cash is high.
  - Cash provides safety and liquidity but limits returns.
- Recommended investment strategy adjustments:
  - Increase share of foreign investments to shift from cash to global bonds and, where appropriate, global equities to improve returns and diversification.
  - Tailor global equities vs global bonds to expected lifetime of the investment portfolio:
    - Raise allocations to global equities for NIS with long investment horizons (DMA and LCA).
    - Favor global bonds for NIS with short investment horizons (GRD and VCT).
  - Diversify by geography and sector to reduce exposure to tourism and physical risks.
  - Reduce reliance on the “Other” category concentrated in illiquid, disaster-exposed real estate relative to OECD profiles.

### Policies toward more efficient, sustainable, and fair pension schemes
- Need to restore sustainability due to looming large pension liabilities and shrinking pension portfolios.
- Comprehensive reforms recommended to allow gradual implementation and minimize intergenerational inequality; reforms should be sequenced with fiscal, financial market, and labor market policies.
- Priority elements of comprehensive parametric reforms:
  - Increase contributions:
    - Contribution rates should be increased towards the EM and OECD averages (16-18 percent) expeditiously.
  - Rationalize benefit rules:
    - Reduce replacement rates by lowering high accrual rates during the vesting period and adopt a uniform accrual rate (e.g., 1.2 percent) for all years of service.
    - Calculate reference wage using career average rather than best few years; a good practice is using average earnings over 25-40 years with past wages indexed.
    - Consider freezing pension benefits over the medium term for older generation sharing of reform burden; thereafter replace ad hoc adjustments with annual inflation-linked adjustments.
  - Improve retirement age rules:
    - Most ECCU countries have approved reforms to increase statutory retirement age to 65; reforms in KNA pending.
    - Eliminate or tighten early retirement in all countries.
    - Consider linking retirement age to life expectancy (e.g., increase automatically by two-thirds of life expectancy gains at age 65).
  - Expand coverage:
    - Make contributions mandatory for the self-employed in KNA, LCA, and VCT.
    - Strengthen compliance and promote participation via:
      - Consolidating collections and compliance between NIS and tax authorities or, at minimum, information sharing.
      - Improving transparency of pension operation and governance.
      - Increasing digitalization to improve user experience and customer service.
- Investment strategy attention:
  - Maximize risk-adjusted returns and diversify to limit domestic risk exposure.
  - Increase global equities for long-horizon NIS (DMA and LCA); increase global bonds for short-horizon NIS (GRD and VCT).
- PSPS reform:
  - Reform public service pension schemes (PSPSs) to rationalize overly generous benefits and align with NIS.
  - Close PSPS to new entrants expeditiously and align PSPS retirement age with NIS.
  - Consolidate PSPS and NIS pensions to avoid duplication and unfair treatment across sectors.
- Establish automatic adjustment stabilizers:
  - Amend Pension Acts to enable coordinated adjustments to benefits and funding policies when triggers are met (e.g., projected funding shortfalls, reserve depletion years falling short of a threshold).
  - Automatic stabilizers can address conflicts between desired benefits and feasible contributions but must be carefully designed to avoid volatility in small countries.

### Implementation examples and actuarial outcomes (selected)
- Example outcomes from actuarial analyses and approved reform packages:
  - Increasing pensionable age to 65 can reduce long-term pay-as-you-go rate from 30 percent to under 25 percent (ATG actuarial report).
  - Increasing contribution rate to 15 percent alone can postpone reserve depletion by about 5 years (GRD actuarial report).
  - A package combining increase in pensionable age to 65, increase in contribution rate, revised early retirement, higher minimum required contributions, and higher minimum pension is estimated to postpone reserve depletion by 20 years (latest approved package in 2023).
  - KNA actuarial report: increase in pensionable age to 65 combined with lowering accrual rate and increasing contribution rate will postpone reserve depletion by 10 years.
  - LCA actuarial report: annual increase of contribution rate by 0.25 percent until reaching 17.05 in 2051 will postpone reserve depletion from 2050 to 2066.
  - Staff assessment for VCT: increase in contribution rate to 15 percent combined with benefit cuts for new pensioners and linking retirement age to life expectancy will postpone reserve depletion outside of the 60-year projection horizon but will not eliminate actuarial imbalance.
- Examples of statutory changes and contribution schedules in ECCU countries:
  - Statutory retirement age increased from 60 in 2016 to 64 in 2023, will be 65 in 2025; minimum contribution requirement increased from 500 weeks in 2016 to 700 in 2023, will be 750 in 2025; employer and employee contribution rate increases specified for 2025.
  - Various countries have phased increases in pensionable age, vesting periods, accrual rate reductions, and planned increases in contribution rates through 2031.

*Source: 1eccea2024002 - 14.      The thresholds for the minimum contributory pension and for the insurable wage.*

### 25.      Youth and female workers consistently exhibited lower labor force participation rates

### 25.      Youth and female workers consistently exhibited lower labor force participation rates

### Key findings on participation and unemployment
- Youth (aged 15-24) participation rates were lower than the total working age population in all countries; young female workers had the lowest participation rates of all.
- Female labor force participation was lower than male participation in all countries.
- Across all countries, youth unemployment was higher than total unemployment, and female unemployment tended to be higher than male unemployment.
- The participation rate gap between men and women in ECCU countries is between 7 and 14 percentage points (pp); comparisons: Latin America and the Caribbean (LAC) average 23pp, world average 26pp, and OECD average 15pp.
- The female share of total employment was higher in education, health and social work, and household work in most ECCU countries.

### Education, sectoral patterns, and gender pay gaps
- Higher education levels were associated with higher participation and employment rates, especially for women employed in the education and health sectors.
- University education generally associated with the highest participation and employment rates, except in Grenada.
- In Antigua and Barbuda, St. Lucia, and St. Vincent and the Grenadines, men with primary or less education had participation and employment rates higher than (or comparable to) men with secondary or pre-university/post-secondary education—reflecting large male-dominated sectors like construction and agriculture that do not require higher education.
- Evidence of substantial gender pay gaps:
  - In St. Lucia, staff econometric analysis finds working-aged women are 8 percentage points less likely to participate in the labor force compared to men with the same observable characteristics.
  - Women with children under the age of 5 in their household are 3 percentage points less likely to participate in the labor market than other women with the same observable characteristics.
  - The unexplained gender pay gap in St. Lucia’s overall labor market (controlling for potential experience, tenure, education, occupation, industry, hours worked, self-employment status, and government employee status) is 18 percent.
  - Unexplained pay gaps by education level in St. Lucia: 21 percent (primary), 21 percent (secondary), 8 percent (post-secondary non-tertiary), and 2 percent (tertiary).
  - The unexplained gender pay gap estimate for St. Lucia is noted as consistent with the world average reported in the International Labor Organization Global Wage Report, 2018/19.

### Pandemic impacts on employment
- The number of formal jobs declined by an average of 8 percent across ECCU countries at the peak of the pandemic in 2020, compared to an average contraction in real output of 15 percent.
- The smaller employment decline may reflect employment retention measures, a relatively high share of public employment in total employment in the ECCU region (roughly 30 percent), and employers reducing hours worked per worker rather than the number of workers.
- In 2021, real output began recovering, but formal employment continued declining (though at a slower pace) in all countries except St. Vincent and the Grenadines.
- Sectors most hit by the pandemic: hospitality (accommodation and food), other services, followed by transportation and health and social workers.
- Formal sector job losses were relatively more severe among male than female workers due to sectoral composition:
  - Public sector (employs more women) had the least formal job losses.
  - Private sector (employs more men in most countries) saw greater formal job losses.
  - In Grenada, LFS data indicates a large increase in informal jobs for men, producing an overall increase in total male employment despite a significant decline in formal male jobs reported in the national insurance scheme.

### Youth NEET, skills, and migration
- The share of both male and female youth who are not in employment, education, or training (NEET) increased during the pandemic.
- School closures and business shutdowns disrupted learning and on-the-job training, potentially widening skills gaps.
- Employers report difficulties finding skilled workers due to emigration and skill mismatches.
- NEET patterns:
  - In both Grenada and St. Lucia, NEET increased; since 2021 male NEET has stayed higher than female in St. Lucia, while the opposite holds for Grenada (consistent with faster male employment recovery in Grenada).
- Migration context:
  - Close to two thirds of ECCU citizens reside abroad.
  - Diasporas provided remittances during the pandemic that were a lifeline and counter-cyclical currency inflows.
  - Post-pandemic, emigration outflows have stabilized for temporary worker programs and student visas; high-skill migration continues driven by a “place premium” (large salary gaps abroad).
  - Global shortage example: estimated shortage of 14.5m healthcare workers (World Health Organization).
  - Policy opportunities include targeted education investments, partnerships with destination countries for legal pathways, reducing remittance transfer fees by ensuring interoperability among payment systems (including Central Bank Digital Currencies), developing return migration strategies, improving portability of pensions and social security benefits, and strengthening CARICOM CSME skills certificate regimes.
  - Data gaps remain on diaspora characteristics, emigration motives, and intra-regional flows.

### Labor market institutions, wages, and policy considerations
- Employment Protection Legislation (EPL) exists across ECCU countries for formal workers, with varying protection levels; unemployment insurance (UI) schemes are rare.
- IMF analysis suggests reducing uncertainty about the cost and duration of dismissal procedures may be more important than the level of severance payments, and recommends linking EPL stringency to the buildup of benefit systems such as UI.
- UI developments:
  - Grenada started its UI scheme in May 2023; it covers 50 percent of a worker’s salary for up to three months where eligibility is set at 52 weeks of contributions into the scheme.
  - Other jurisdictions introduced temporary support during the pandemic and are exploring formal UI options (Dominica and St Vincent and the Grenadines introduced temporary schemes and are actively exploring formal UI).
- Recommendation to gradually recalibrate institutional frameworks toward a mixed EPL-UI approach as economies grow and administrative capacity develops; make EPL less stringent, simpler, and more predictable.
- Minimum wages:
  - Minimum wages are less effective if poorly targeted, misaligned, and rigidly applied.
  - Minimum-to-average wage ratio among ECCU countries was close to, or above, the prevailing average of 55 percent for EMDCs and significantly higher than the average in advanced countries.
  - Empirical studies broadly advocate a ratio between 25 and 50 percent of the average wage (IMF 2016a).
  - At levels between 40–5  0 percent, further increases can have greater economic trade-offs, including in employment—suggesting scope to recalibrate minimum wages in ECCU countries.
- Active Labor Market Policies (ALMPs) and social supports:
  - Targeted ALMPs can help address gender and youth gaps and support transitions to UI.
  - Child and elderly care needs are linked with lower female participation; higher education levels are associated with increased participation, particularly among women.
  - Policy options: development partner support to improve education attainment (including vocational education and training), review education programs to strengthen employability, social programs tailored to non-economic barriers (low education attainment, school dropouts), more parental and elderly care leave, parity between maternity and paternity leave, promote access to affordable, high-quality childcare, and support female entrepreneurs by increasing access to finance.
  - ALMPs can be conditioned for UI qualification (training and job search), helping to substitute for job search monitoring and reduce informal sector work while receiving UI benefits.

### Data priorities
- Improving data collection and analysis is a pre-requisite for evidence-based labor market policymaking:
  - Conduct and publish regular labor force surveys and censuses to provide general labor market information.
  - Collect detailed information on jobseekers and groups on the margins of the labor market to tailor ALMPs.
  - Measure informality extent to inform the potential effectiveness of labor market institutions and scope for reform.

*Source: Eastern Caribbean Currency Union — IMF staff report (chapter content provided).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1eccea2024002.pdf_