## 4. Caribbean: Social Security Reserve Asset Allocation

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### Asset allocation and financial-stability concerns
- The share of total assets held in bank deposits raises concerns about potential systemic financial stability.
- In the ECCU countries, deposits are held almost exclusively in locally incorporated banks, which are heavily exposed to the government on the asset side—implying that NIS’ overall exposure to government could be higher than reported.
- Concern about the banking-system impact if social security surpluses dry up and reserve assets are withdrawn to fund cash-flow deficits.
- A more developed interbank market would help reduce liquidity pressures, but this market has remained fairly inactive.

### Investment returns and objectives
- Some schemes are mandated to pursue developmental objectives (housing, health, tourism, education) and have advanced loans to government entities, including development banks, sometimes at below market interest rates.
- As a result, NIS may be subsidizing social programs instead of achieving higher market yields where there is no excess liquidity.
- The average yield was 1.6 percent, in real terms, during 2009–13, reflecting mainly investment in low risk assets.

### Viability of pension systems and need for fiscal transparency
Findings
- The PAYGO contribution rate (rate at which current outlays equal current revenues) and the premium gap (PAYGO rate minus current contribution rate) indicate funding shortfalls.
- All pension schemes in the region have a premium gap, except Barbados.
- Examples of premium gaps and required contribution changes:
  - Dominica: contribution rate would have to be increased from 10.8 percent to 14.9 percent.
  - St. Vincent and the Grenadines: contribution rate would have to be increased from 10 percent to 23 percent (more than twice the current rate).
- Net implicit debt (present value of future expenditures minus present value of future contributions plus current reserves over a 45-year horizon) ranges:
  - From a surplus of 0.7 percent of GDP in Barbados
  - To a deficit of 92 percent of GDP in Jamaica
- If schemes are unable to meet obligations, the government is expected to step in—these contingent liabilities are major sources of fiscal risk given already overstretched fiscal positions and very high public debt-to-GDP ratios in the region.
- Failure to disclose and prepare for contingent liabilities has led to large increases in public debt and triggered fiscal crisis in past cases.

Policy recommendations on transparency
- Actuarial deficits should be systematically monitored and reported to the public with frequency and detail that permit proper evaluation of fiscal risk.
- GFSM 2001 recommends extending government coverage in statistics to include the nonfinancial public sector and general government—for example, to encompass the NIS.
- The IMF’s Code of Good Practices on Fiscal Transparency requires that public sector balances be reported and calls for separate reporting of the nature and fiscal significance of quasi-fiscal activity.
- Given large fiscal risks from pension schemes, governments should adhere to these international best-practice codes.

### Impact analysis of parametric reforms (focus on old-age pension)
Overview
- The magnitude of unfunded pension deficits suggests relatively deeper reforms are required to stabilize schemes over the next 45 years.
- Reforms considered (parametric, strengthening existing PAYGO system, envisioned as initial steps):
  - (i) raising the statutory retirement age from 60 to 65 years (with country-specific adjustments noted in footnotes);
  - (ii) freezing pension spending for two years;
  - (iii) increasing the contribution rate on a one-time basis by one percentage point in 2016.

A. Raising the statutory retirement age
- Rationale:
  - The gap between life expectancy and pension eligibility age is relatively large for most Caribbean countries.
  - Elders expected to remain healthier and less likely to be disabled, potentially enabling work for longer.
  - Raising retirement age increases years of contributions and reduces years of benefits.
- Example impact:
  - Dominica: simulations show increasing the statutory retirement age would generate cumulative savings of 6.0 percent of GDP by 2021 relative to 2015 (see Table 6).
- Additional advantages:
  - Could bolster long-run economic growth via continued labor force participation and higher lifetime earnings.
  - More equitable intergenerational burden sharing.
  - Could allow reduction in the contribution rate in some cases, lowering labor costs and increasing household disposable income.
- Disadvantages:
  - Possible deterioration in quality of life and higher anxiety for older workers.
  - Evidence shows retirement age increases do not automatically raise labor force participation; complementary reforms may be required.

B. Freezing old-age benefits (two-year freeze)
- Fiscal impact:
  - An across-the-board freeze for two years would generate 0.9 percent of GDP in savings in 2016.
  - Example: in Guyana, it would postpone depletion of NIS assets from 2021 to 2027.
- Risks and trade-offs:
  - Could marginally worsen old-age poverty depending on reliance on pension income versus other sources.
  - Could dampen economic growth and undermine poverty containment, especially under high inflation.

C. Increasing the contribution rate (one-time +1 percentage point in 2016)
- Context:
  - Average pension contribution rate in the Caribbean is lower than averages in Europe, Asia and Latin America.
- Example impact:
  - St Kitts and Nevis: a 1 percentage point increase would increase contribution income by 0.9 percent of GDP in 2016.
- Trade-offs:
  - Strengthening link between contributions and benefits can improve labor market outcomes but aggravates intergenerational imbalances (contributions paid by working-age population).
  - In fixed exchange rate regimes (all countries except Guyana and Jamaica), increasing labor market friction could be costly for growth and employment.

D. Impact of all three reforms combined
- On average, all three measures implemented together would eliminate the actuarial deficit for the region as a whole in 2016.
- For countries with large unfunded liabilities (Antigua and Barbuda, The Bahamas, Belize, Jamaica, St Vincent and the Grenadines), these measures will not be sufficient to fully address actuarial deficits despite significant cost reductions.
- Population aging dynamics limit the reforms’ impact on raising contributions, indicating the need to broaden scheme coverage.
- Example additional needs:
  - Antigua and Barbuda would need to consider increasing contribution rates further by as much as 5.5 percent to close the premium gap.
- Table 7: Premium Gap After Implementation of All Three Measures (selected entries)
  - Antigua and Barbuda: Contribution Rate 8.7; Average Pay-As-You-Go Rate 14.2; Premium Gap 5.5
  - Bahamas: Contribution Rate 10.8; Average Pay-As-You-Go Rate 16.2; Premium Gap 5.4
  - Belize: Contribution Rate 9.0; Average Pay-As-You-Go Rate 13.0; Premium Gap 4.0
  - Jamaica: Contribution Rate 6.0; Average Pay-As-You-Go Rate 11.4; Premium Gap 5.4
  - St Vincent and the Grenadines: Contribution Rate 11.0; Average Pay-As-You-Go Rate 18.6; Premium Gap 7.6

Cumulative fiscal impacts from Table 6 (Increase Contribution Rate (1%); Freeze Pensions (2 yrs.); Increase Pension Eligibility Age) — selected country rows (Cumulative; in percent of GDP)
- Antigua and Barbuda 1/: 0.3; 1.8; 0.1; 1.7; 0.6; 2.0
- The Bahamas 2/: 0.8; 5.3; 0.4; 3.2; 0.3; 1.6
- Belize 2/: 0.3; 1.5; 0.1; 1.0; 0.7; 2.3
- Dominica 1/: 2.2; 6.0; 0.2; 1.9; 0.9; 3.1
- Jamaica 2/: 0.3; 1.4; 0.4; 1.2; 0.0; 0.6
- St Kitts and Nevis 1/: 1.0; 3.6; 0.1; 1.5; 0.9; 3.0
- St Lucia 1/: 1.1; 4.9; 0.2; 2.9; 0.6; 2.3
- St Vincent and the Grenadines 1/: 0.1; 2.1; 0.0; 1.3; 0.3; 1.8
- Trinidad and Tobago 2/: 2.1; 7.5; 0.2; 2.2; 0.4; 1.5
- Grenada, Guyana, Barbados entries are also provided in Table 6 in the source.
- Notes in Table 6:
  - 1/ Increase statutory retirement age from 60 to 65.
  - 2/ Increase statutory retirement age from 65 to 67.
  - 3/ For Barbados, an increase in the pensionable age to 67 is already planned for 2018.

### Concluding remarks and recommended actions
Findings
- Population aging is increasing pressure on public finances in the Caribbean; long-term projections show unfavorable demographic trends and pension schemes have become unsustainable.
- Investment of pension funds may lead to high exposures to government securities.
- Anemic economic growth, rising unemployment, and limited macroeconomic policy room amplify the need for reform.

Recommended policy directions
- Implement a range of reform measures (parametric and structural) to contain projected increases in pension spending.
- Parametric measures considered (raising retirement age, freezing benefits short-term, increasing contribution rates) can have positive fiscal and growth implications but involve trade-offs for intergenerational equity, labor markets, and old-age welfare.
- For countries where parametric measures are insufficient (Antigua and Barbuda, Belize, Jamaica, St Vincent and the Grenadines, The Bahamas), reforms should be complemented by improving coverage of pension schemes and potentially larger contribution increases or more far-reaching structural reforms.
- Authorities should build national awareness of fiscal risks from pension schemes and systematically monitor and report actuarial deficits publicly with adequate frequency and detail to enable proper evaluation of fiscal risk.

*Source: IMF staff estimates and national authorities as presented in the original chapter.*

### 4. Caribbean: Social Security Reserve Asset Allocation

### 4. Caribbean: Social Security Reserve Asset Allocation

### Asset allocation and financial stability concerns
- The share of total assets held in bank deposits raises concerns about potential systemic financial stability.
- In the ECCU countries, deposits are held almost exclusively in locally incorporated banks, which are heavily exposed to the government on the asset side—implying that NIS’ overall exposure to government could be higher than reported.
- There is concern about the banking-system impact if social security surpluses dry up and reserve assets are withdrawn to fund cash-flow deficits.
- A more developed interbank market would help reduce liquidity pressures, but this market has remained fairly inactive.

### Investment returns and objectives
- Some schemes are mandated to pursue developmental objectives (housing, health, tourism, education) and have advanced loans to government entities, including development banks, sometimes at below market interest rates.
- As a result, NIS may be subsidizing social programs instead of achieving higher market yields where there is no excess liquidity.
- The average yield was 1.6 percent, in real terms, during 2009–13, reflecting mainly investment in low risk assets.

### Viability of pension systems and need for fiscal transparency
Findings
- The PAYGO contribution rate (rate at which current outlays equal current revenues) and the premium gap (PAYGO rate minus current contribution rate) indicate funding shortfalls.
- All pension schemes in the region have a premium gap, except Barbados.
- Examples of premium gaps and required contribution changes:
  - Dominica: contribution rate would have to be increased from 10.8 percent to 14.9 percent.
  - St. Vincent and the Grenadines: contribution rate would have to be increased from 10 percent to 23 percent (more than twice the current rate).
- Net implicit debt (present value of future expenditures minus present value of future contributions plus current reserves over a 45-year horizon) ranges:
  - From a surplus of 0.7 percent of GDP in Barbados
  - To a deficit of 92 percent of GDP in Jamaica
- If schemes are unable to meet obligations, the government is expected to step in—these contingent liabilities are major sources of fiscal risk given already overstretched fiscal positions and very high public debt-to-GDP ratios in the region.
- Failure to disclose and prepare for contingent liabilities has led to large increases in public debt and triggered fiscal crisis in past cases.

Policy recommendations on transparency
- Actuarial deficits should be systematically monitored and reported to the public with frequency and detail that permit proper evaluation of fiscal risk.
- GFSM 2001 recommends extending government coverage in statistics to include the nonfinancial public sector and general government—for example, to encompass the NIS.
- The IMF’s Code of Good Practices on Fiscal Transparency requires that public sector balances be reported and calls for separate reporting of the nature and fiscal significance of quasi-fiscal activity.
- Given large fiscal risks from pension schemes, governments should adhere to these international best-practice codes.

### Impact analysis of parametric reforms (focus on old-age pension)
Overview
- The magnitude of unfunded pension deficits suggests relatively deeper reforms are required to stabilize schemes over the next 45 years.
- Reforms considered (parametric, strengthening existing PAYGO system, envisioned as initial steps):
  - (i) raising the statutory retirement age from 60 to 65 years (with country-specific adjustments noted in footnotes);
  - (ii) freezing pension spending for two years;
  - (iii) increasing the contribution rate on a one-time basis by one percentage point in 2016.

A. Raising the statutory retirement age
- Rationale:
  - The gap between life expectancy and pension eligibility age is relatively large for most Caribbean countries.
  - Elders expected to remain healthier and less likely to be disabled, potentially enabling work for longer.
  - Raising retirement age increases years of contributions and reduces years of benefits.
- Example impact:
  - Dominica: simulations show increasing the statutory retirement age would generate cumulative savings of 6.0 percent of GDP by 2021 relative to 2015 (see Table 6).
- Additional advantages:
  - Could bolster long-run economic growth via continued labor force participation and higher lifetime earnings.
  - More equitable intergenerational burden sharing.
  - Could allow reduction in the contribution rate in some cases, lowering labor costs and increasing household disposable income.
- Disadvantages:
  - Possible deterioration in quality of life and higher anxiety for older workers.
  - Evidence shows retirement age increases do not automatically raise labor force participation; complementary reforms may be required.

B. Freezing old-age benefits (two-year freeze)
- Fiscal impact:
  - An across-the-board freeze for two years would generate 0.9 percent of GDP in savings in 2016.
  - Example: in Guyana, it would postpone depletion of NIS assets from 2021 to 2027.
- Risks and trade-offs:
  - Could marginally worsen old-age poverty depending on reliance on pension income versus other sources.
  - Could dampen economic growth and undermine poverty containment, especially under high inflation.

C. Increasing the contribution rate (one-time +1 percentage point in 2016)
- Context:
  - Average pension contribution rate in the Caribbean is lower than averages in Europe, Asia and Latin America.
- Example impact:
  - St Kitts and Nevis: a 1 percentage point increase would increase contribution income by 0.9 percent of GDP in 2016.
- Trade-offs:
  - Strengthening link between contributions and benefits can improve labor market outcomes but aggravates intergenerational imbalances (contributions paid by working-age population).
  - In fixed exchange rate regimes (all countries except Guyana and Jamaica), increasing labor market friction could be costly for growth and employment.

D. Impact of all three reforms combined
- On average, all three measures implemented together would eliminate the actuarial deficit for the region as a whole in 2016.
- For countries with large unfunded liabilities (Antigua and Barbuda, The Bahamas, Belize, Jamaica, St Vincent and the Grenadines), these measures will not be sufficient to fully address actuarial deficits despite significant cost reductions.
- Population aging dynamics limit the reforms’ impact on raising contributions, indicating the need to broaden scheme coverage.
- Example additional needs:
  - Antigua and Barbuda would need to consider increasing contribution rates further by as much as 5.5 percent to close the premium gap (see Table 7).
- Table 7: Premium Gap After Implementation of All Three Measures (selected entries)
  - Antigua and Barbuda: Contribution Rate 8.7; Average Pay-As-You-Go Rate 14.2; Premium Gap 5.5
  - Bahamas: Contribution Rate 10.8; Average Pay-As-You-Go Rate 16.2; Premium Gap 5.4
  - Belize: Contribution Rate 9.0; Average Pay-As-You-Go Rate 13.0; Premium Gap 4.0
  - Jamaica: Contribution Rate 6.0; Average Pay-As-You-Go Rate 11.4; Premium Gap 5.4
  - St Vincent and the Grenadines: Contribution Rate 11.0; Average Pay-As-You-Go Rate 18.6; Premium Gap 7.6
- Cumulative fiscal impacts from Table 6 (Increase Contribution Rate (1%); Freeze Pensions (2 yrs.); Increase Pension Eligibility Age) — selected country rows (Cumulative; in percent of GDP):
  - Antigua and Barbuda 1/: 0.3; 1.8; 0.1; 1.7; 0.6; 2.0
  - The Bahamas 2/: 0.8; 5.3; 0.4; 3.2; 0.3; 1.6
  - Belize 2/: 0.3; 1.5; 0.1; 1.0; 0.7; 2.3
  - Dominica 1/: 2.2; 6.0; 0.2; 1.9; 0.9; 3.1
  - Jamaica 2/: 0.3; 1.4; 0.4; 1.2; 0.0; 0.6
  - St Kitts and Nevis 1/: 1.0; 3.6; 0.1; 1.5; 0.9; 3.0
  - St Lucia 1/: 1.1; 4.9; 0.2; 2.9; 0.6; 2.3
  - St Vincent and the Grenadines 1/: 0.1; 2.1; 0.0; 1.3; 0.3; 1.8
  - Trinidad and Tobago 2/: 2.1; 7.5; 0.2; 2.2; 0.4; 1.5
  - Grenada, Guyana, Barbados entries are also provided in Table 6 in the source.
  - Notes in Table 6: 1/ Increase statutory retirement age from 60 to 65. 2/ Increase statutory retirement age from 65 to 67. 3/ For Barbados, an increase in the pensionable age to 67 is already planned for 2018.

### Concluding remarks and recommended actions
Findings
- Population aging is increasing pressure on public finances in the Caribbean; long-term projections show unfavorable demographic trends and pension schemes have become unsustainable.
- Investment of pension funds may lead to high exposures to government securities.
- Anemic economic growth, rising unemployment, and limited macroeconomic policy room amplify the need for reform.

Recommended policy directions
- Implement a range of reform measures (parametric and structural) to contain projected increases in pension spending.
- Parametric measures considered (raising retirement age, freezing benefits short-term, increasing contribution rates) can have positive fiscal and growth implications but involve trade-offs for intergenerational equity, labor markets, and old-age welfare.
- For countries where parametric measures are insufficient (Antigua and Barbuda, Belize, Jamaica, St Vincent and the Grenadines, The Bahamas), reforms should be complemented by improving coverage of pension schemes and potentially larger contribution increases or more far-reaching structural reforms.
- Authorities should build national awareness of fiscal risks from pension schemes and systematically monitor and report actuarial deficits publicly with adequate frequency and detail to enable proper evaluation of fiscal risk.

*Source: IMF staff estimates and national authorities as presented in the original chapter.*

### References

### References

### Bibliographic citations
- Antigua-Barbuda Social Security Board, 2013, “The 9th Actuarial Review of the Social Security Fund as of December 31, 2009.”
- Alleyne, F., 2001, “Investing Social Security Surpluses in the English-Speaking Caribbean,” in Plamondon and Osborne, Social Security Financing and Investment in the Caribbean.
- Brough, M., 2004, Pension Reform in the Caribbean, http://www.watsonwyatt.com/multinational/render2.esp?ID=12471
- Cebotari, A., 2008, “Contingent Liabilities: Issues and Practice,” IMF Working Paper, No. 08/245 (Washington DC: International Monetary Fund).
- Centre for the International Promotion of Quebec Public Expertise, 2012, Trinidad and Tobago: Eight Actuarial Review of the National Insurance System as of June 2010.
- Chai, J., 2006, “The Eastern Caribbean Currency Union Banking System in a Time of Fiscal Challenge,” in R. Sahay, D.O. Robinson and P. Cashin (eds), The Caribbean: From Vulnerability to Sustained Growth (Washington DC: International Monetary Fund, pp. 143–80).
- ECLAC, 2005a, Social Security in the English-Speaking Caribbean, December 15, 2005.
- ECLAC, 2005b, Social Security Reforms and Their Implications for the Caribbean, December 15, 2005.
- ECLAC, 2006, Report of the High-Level Ministerial Dialoque—Social Security and Sustainable Social Development in the Caribbean, June 14-15, 2006.
- Guyana National Insurance Board, 2012, “The 8th actuarial review of the National Insurance Fund as at December 31 2011.”
- Guyana National Insurance Board, 2012, Annual report of National Insurance Scheme for 2011.
- Henry, V., 2004, “An Investigation into the Structure, Governance and Performance of the Social Security Organizations in the Caribbean,” (Toronto: University of Toronto Press).
- Herbert, A., 2005, Social Security Schemes and Potential Reforms in Five Caribbean Countries, in P.D. Brunton and P. Masci, Workable Pension Systems: Reforms in the Caribbean, IADB-CDB: 323-52
- International Monetary Fund, 12, “The Challenge of Public Pension Reform in Advance and Emerging Economies,” IMF Occasional Paper 275 (Washington).
- Jamaica National Insurance Board, 2014, Actuarial Analysis of the sustainability of the National Insurance Scheme in Jamaica.
- Levy, H., and M. Sarnat, 1970, “International Diversification of Investment Portfolios,” American Economic Review, Vol. 60, pp. 668–75.
- Mitchell, O., 1998, “Administrative Costs in Public and Private Retirement Systems” in M. Feldstein (ed), Privatizing Social Security (Chicago: University of Chicago Press), pp. 403–56.
- Monroe, Hunter, 2009, “Can the Eastern Caribbean Currency Union Afford to Grow Old?” IMF Working Paper, No. 09/38 (Washington DC: International Monetary Fund).
- Montas, Hernando Peres, 2010, Belize: Actuarial Review of the Social Security Scheme, 2009.
- National Insurance Board of Barbados, 2014, The 14th actuarial review of the National Insurance, unemployment and severance fund as at 31 December 2011.
- National Insurance Board of Barbados, [2011], The 13th actuarial review of the National Insurance, unemployment and severance fund as at 31 December 2008.
- National Insurance Board of the Bahamas, 2015, Annual report of the National Insurance Fund as at 31 December 2014.
- National Insurance Board of the Bahamas, 2014, Annual report of the National Insurance Fund as at 31 December 2013.
- National Insurance Board of the Bahamas, 2013, Actuarial Review of the National Insurance Fund as at 31 December 2011.
- National Insurance Board of Dominica, 2014, “The 10th Actuarial Valuation of the National Insurance Fund as at December 31, 2012.”
- National Insurance Board of Grenada, 2014, “The 10th Actuarial Valuation of the National Insurance Fund as at December 31, 2012.”
- National Insurance Board of Trinidad and Tobago, 2012, Annual report as at June 30, 2012.
- Nicholls, G., 2001, “Emerging Issues for the Eastern Caribbean Currency Union’s Social Security Schemes,” Journal of Eastern Caribbean Studies, Vol. 26, pp. 35–73.
- Nicholls, G., 2002, “Is there a Case for Foreign Investment by the Eastern Caribbean Currency Union’s (ECCU) Social Security Schemes?,” Savings and Development, Vol. 26, pp. 301-24.
- Office of the Superintendent of Financial Institutions, Government of Canada, 2013, Actuarial report (26th) on the Canadian Pension Plan.
- OECD/IDB/The World Bank, 2014, “Pensions at a Glance: Latin America and the Caribbean” (Paris: OECD Publishing)
- Osborne, D., 2004, “Social Security in the CARICOM Single Market and Economy,” Caricom Secretariat (Georgetown: CARICOM).
- Paddison, O., 2006, Social Security in the English-Speaking Caribbean, Financiamento del Desarrolo, No.178. E. CEPAL.
- Pattinato, S. and J. Diaz, 2005, “A Needs Assessment of Pension Systems in the English-Speaking Caribbean,” Brunton, P. Desmond and Petro Masci, eds., Workable Pension Systems: Reforms in the Caribbean, IDB-CDB.
- Plamondon, P. and D. Osborne, 2001, Social Security financing and investments in the Caribbean, Issues in Social Protection, ILO.
- Roache, S., 2006, “Domestic Investment and the Cost of Capital in the Caribbean,” IMF Working Paper, No. 06/152 (Washington DC: International Monetary Fund).
- Roseveare, D., W. Leibfritz, D. Fore and E. Wurzel, 1995, “Ageing Populations, Pension Systems and Government Budgets,” OECD Economics Department Working Paper No. 168 (Paris: OECD).
- Samuel, W., and D. Velculescu, 2003, “Social Security Issues in the Caribbean,” Eastern Caribbean Currency Union—Selected Issues, IMF Country Report 03/88 (Washington DC: International Monetary Fund), pp. 97–116 (Washington DC: Social Security Administration)
- Saint Lucia, 2010, Report of the Government: Tenth actuarial Valuation review of the National Insurance Fund. International Labour Office, Geneva.
- Social Security Administration, 2015, “Social Security Programs throughout the World: Asia and the Pacific, 2014”, SSA Publication No. 13–11802 (Washington DC: Social Security Administration)
- Social Security Administration, 2014, “Social Security Programs throughout the World: Europe, 2014,” SSA publication no. 13–11801 (Washington DC: Social Security Administration)
- Social Security Administration, 2014, “Social Security Programs throughout the World: Americas, 2013,” SSA publication no. 13–11804 (Washington DC: Social Security Administration)
- Social Security Administration, Office of the Chief Actuary, 2015, Facts Sheet on the Old Age, Survivors, and Disability Insurance Program (Washington DC: Social Security Administration)
- Social Security Board of Belize, 2013, Annual report for 31 December 2012.
- Social Security Board of St. Kitts and Nevis, 2010, “The 9th Actuarial Review of the St. Christopher and Nevis Social Security Fund as of December 31, 2008.”
- National Insurance Board of St. Vincent and the Grenadines, 2015, “The 9th Actuarial Review of the National Insurance Fund of St. Vincent & the Grenadines as of December 31, 2013.”
- Sosa, S., 2006, “Tax Incentives and Investment in the Eastern Caribbean,” IMF Working Paper No. 06/23 (Washington DC: International Monetary Fund).
- Veira, J., 2005, National Insurance Services of St. Vincent and the Grenadines: Actuarial Valuation as of January 1st 2005 (St. Vincent and the Grenadines: Board of the NIS of St. Vincent and the Grenadines).
- World Bank, 2009, “Strengthening Caribbean Pensions: Improving Equity and Sustainability” (Washington DC: The World Bank).
- World Bank, 2010, Strengthening Caribbean Pensions: Improving Equity and Sustainability, (World Bank) Human Development Sector Management Unit, Report No.47673-LAC.

*Sources: Country authorities and IMF staff estimates.*

### Annex I. Macroeconomic Trends, 2006-14 — Key statistics (selected)
- GDP growth (2006–2014) — examples by country (annual values shown in table):
  - Antigua and Barbuda: 12.7, 7.1, 1.5, -10.7, -8.5, -1.9, 3.6, 1.5, 4.2, 7.1, -2.0
  - The Bahamas: 2.5, 1.4, -2.3, -4.2, 1.5, 0.6, 2.2, 0.0, 1.0, 0.5, 0.2
  - Barbados: 5.7, 1.8, 0.4, -4.0, 0.3, 0.8, 0.3, 0.0, 0.2, 2.6, -0.4
  - Belize: 4.6, 1.1, 3.2, 0.7, 3.3, 2.1, 3.8, 1.5, 3.6, 3.0, 2.5
  - Guyana: 5.1, 7.0, 2.0, 3.3, 4.4, 5.4, 4.8, 5.2, 3.8, 4.7, 4.5
  - Jamaica: 2.9, 1.4, -0.8, -3.4, -1.5, 1.4, -0.5, 0.2, 0.4, 1.2, -0.6
  - Trinidad and Tobago: 13.2, 4.8, 3.4, -4.4, -0.1, 0.0, 1.4, 1.7, 0.8, 7.1, -0.1
- Unemployment rate (select entries as presented):
  - The Bahamas: 7.6, 7.9, 8.7, 14.2, 15.1, 15.9, 14.4, 15.8, 14.6, 8.1, 15.0
  - Barbados: 8.7, 7.4, 8.1, 10.0, 10.3, 11.2, 11.5, 11.6, 12.7, 8.1, 11.2
  - Belize: 9.4, 8.5, 8.2, 13.1, 13.5, 14.0, 14.4, 14.1, 11.1, 8.7, 13.4
  - Jamaica: 10.3, 9.9, 10.6, 11.4, 12.4, 13.0, 13.9, 15.3, 15.3, 10.3, 13.5
  - Trinidad and Tobago: 6.2, 5.5, 4.6, 5.3, 5.9, 5.1, 4.9, 3.7, 3.3, 5.5, 4.7
- General government balance (percent of GDP) — select entries:
  - Antigua and Barbuda: -8.8, -5.0, -5.7, -18.2, -0.3, -3.6, -1.2, -4.3, -2.9, -6.5, -5.1
  - Barbados: -2.4, -4.4, -4.8, -7.3, -8.8, -4.4, -8.6, -11.2, -6.6, -3.9, -7.8
  - Jamaica: -4.9, -3.8, -7.5, -11.1, -6.3, -6.4, -4.1, 0.1, -0.5, -5.4, -4.7
  - Trinidad and Tobago: 6.1, 3.6, 8.0, -9.1, -3.8, -0.1, -0.3, -2.0, -4.0, 5.9, -3.2
- Public debt (percent of GDP) — select entries:
  - Antigua and Barbuda: 90.9, 79.2, 77.3, 102.5, 90.8, 92.4, 87.1, 95.5, 98.2, 82.4, 94.4
  - Belize: 90.6, 86.0, 79.8, 83.7, 83.2, 79.4, 75.0, 75.2, 75.3, 85.5, 78.6
  - Jamaica: 117.1, 114.5, 127.0, 141.9, 142.0, 140.5, 145.3, 139.7, 135.7, 119.5, 140.9
  - St Kitts and Nevis: 143.8, 135.0, 131.9, 144.3, 159.3, 151.6, 137.3, 102.9, 79.9, 136.9, 129.2
  - Trinidad and Tobago: 32.6, 26.1, 21.5, 30.6, 35.2, 32.3, 40.7, 39.1, 39.3, 26.7, 36.2

*Notes in table:*
- 1/ In percent of GDP.
- 2/ Central government.

### Annex II. Recent Parametric Reforms in Selected Countries — Summary of reforms and parameters
- Barbados
  - Increasing contributions from 14 percent to 18 percent of insurable earnings over four years.
  - Raising retirement age by six months every four years beginning in 2006, up to the revised retirement age of 67 years by the year 2018.
  - Subjecting early retirement to an actuarial reduction of ½ percent per month early.
  - Voluntary deferral in NIS pensions until age 70 with increase of ½ percent for each month after the standard pensionable age.
  - Target reserve-to-expenditure ratio of five.
- Bahamas
  - Unemployment benefit introduced in 2009; contribution rate raised by 1 percent to 9.8 percent in June 2010.
  - National Prescription Drug Plan introduced in 2010, providing free prescription drugs for 14 chronic diseases for selected active beneficiaries.
  - Eligibility rules modified in 2010 and 2012.
  - Wage ceiling raised by 50 percent; automatic biannual adjustments to pensions in payment and the wage ceiling introduced.
- Belize (as of July 1, 2003)
  - Contributions increased from 7 percent to 8 percent; employers 6½ percent and employees 1½ percent up to B$130 of weekly insurable earnings.
  - Vesting minimum increased from 26 to 50 contributions to qualify for retirement grant.
  - Insurable earnings ceiling rose from B$320 per week to B$640.
  - Retirement pension earmarked for a 100 percent increase to B$384 per week.
  - New pension formula: 2 percent of final average earnings for the first 20 years, thereafter 1.25 percent up to a maximum of 60 percent of final average earnings.
  - Final average earnings basis changed from best three years to best five years.
  - Voluntary retirement age raised from 60 to 63 years; mandatory retirement from 65 to 67 years.
  - Institutional reforms: prudential regulation, streamlining operations, monitoring financial and actuarial developments, designing key performance indicators.
  - Plans to revise government pension scheme and self-employed scheme to widen coverage.
- Dominica (government reform plan approved in 2006)
  - Total contribution rates to increase from 10.75 percent (2009) to 15 percent.
  - Contribution ceiling increased from EC$1,000 to EC$6,000 per month starting in 2008.
  - Annual accrual rate for contribution period between 10 and 20 years reduced from 2 to 1 percent; maximum replacement rate reduced from 70 to 60 percent starting in 2008.
  - Pensionable wages calculation increased from 3 to 10 years starting in 2008.
  - Minimum pension age increased by 1 year every 3 years up to 65, starting in 2009.
- Jamaica (from April 2006)
  - Weekly rate for full Old Age, Invalidity and Widow’s Pension raised from J$900 to J$1,500; Dependent Spouse’s Allowance from J$300 to J$500.
  - Insurable wage ceiling doubled from J$250,000 to J$500,000 from October 2003.
  - Contribution rate unchanged at 2.5 percent each by employer and employee.
  - 20 percent of contributions transferred to the National Health Fund; National Health Plan for pensioners implemented since October 2003.
- St Lucia
  - Normal retirement pensionable age gradually increased from 60 to 65.
  - Years of contribution required increased from 10 to 15 (progress began in 2000, to be completed by 2013).
  - Required age for a surviving spouse to get a permanent pension raised from 55 to the normal pension age.
- St Vincent and the Grenadines
  - Contribution rate increased as of January 1, 2008 to 8 percent of covered wages (4.5 percent employer, 3.5 percent employee).
  - Reforms enacted in 2013 effective January 1, 2014:
    - Increase in the contribution rate to 10 percent.
    - Number of years of insurable wages averaged when calculating Age pension increased from best 3 in 15 years prior to age 60 to the best 5 years over all contribution years.
    - Contribution rate of self-employed persons increased from 7.5 percent to 9.5 percent.
- Trinidad and Tobago
  - 16 classes of contributions (Jan 2008). From 5 January 2004, earnings limits of each class indexed to earnings inflation.
  - Effective income ceiling raised to TT$8,300 per month (Jan. 2008); minimum contributory earnings to rise to TT$433 per month (2004).
  - Contribution increase from 10.5 to 11.4 percent phased in from 2008 to 2012.
  - Basic pensions indexed to earnings inflation; basic pension rates increased by 24 percent. Increment rates increased, resulting in a 71.6 percent increase in increments and an overall increase of 112.8 percent when indexation is included.
  - Introduction of a minimum pension of TT$2,000 per month (Jan. 2008).
  - Pensions payable for persons who retire at age 60; pensioners who return to work remain entitled to their pension and eligible for employment injury coverage by paying class Z contributions.

*Sources for Annex II: World Bank (2010); and IMF staff.*

### Annex III. Demographic Projections — Contents and sources
- Country population profiles by age groups (0-14, 15-59, 60+) are provided for:
  - Antigua & Barbuda; Bahamas; Barbados; Belize; Dominica; Grenada; Guyana; Jamaica; St. Kitts & Nevis; St. Lucia; St. Vincent and Grenadines; Trinidad.
- Time horizons in charts include years: 2009, 2012, 2014, 2015, 2018, 2021, 2024, 2027, 2030, 2033, 2036, 2039, 2042, 2045, 2048, 2051, 2054, 2057, 2060, 2063, 2066, 2069 (depending on country chart).
- Chart units: Thousands of Persons (as labeled).
- Sources cited for demographic projections: 9th Actuarial Review and IMF Staff Estimates; National authorities.

*Source: National authorities; 9th Actuarial Review and IMF Staff Estimates (as cited).*

### Annex IV: Baseline Projections

### Annex IV: Baseline Projections

### The Model and Overview
- The model adopts historic costs and benefits and projects them using a cohort-level demographic simulation.
- Demographic simulation forecasts births, deaths, and migrations for each year and for each cohort to estimate retiree and workforce populations over time.
- Cost and benefit factors are grown by a function of macroeconomic and demographic estimates to provide a cost estimate of the scheme over time.
- Initial baseline model parameters are set to mirror the conditions in the baseline of the last actuarial report for each country, where available.
- The actuarial balance for each country is calculated as: present value of contributions (and returns or losses on investment) minus present value of payments to beneficiaries (and administrative expenditure).
- The discount rate used in the actuarial balance calculation is 5 percent for all countries.

### Projection Methodology (2016–2050)
- Contribution income grows in line with:
  - the number of contributors,
  - real income (IMF estimates),
  - inflation,
  - contribution rate.
- Number of contributors is based on population size and the labor force as indicated in the most recent Actuarial Report.
- Number of pensioners is projected by adjusting the previous year’s figure by projected newcomers and exits from demographic simulations.
- Projected number of new beneficiaries is based on the assumption that shares of cohorts of covered pensioners in the population remain at the same level during the forecast period; injuries are forecast in line with assumed disability rates.
- Projection of exits is based on most recent data on shares of exits by cohort, adjusted for changes in life expectancy.

### Demographic and Risk Assumptions
- Fertility Rate:
  - Represents number of children per adult, per year in a given cohort.
  - Multiplied by the number of people at that age in the cohort; allows age-group adjustments.
- Mortality:
  - Built with pre-set mortality assumptions set out in a life table based on the most recent country actuarial report’s demographic assessments.
  - Mortality figures create a “proportion of persons left alive” within an age cohort as it moves to the next cohort.
  - Death rates within cohorts are adjusted to follow the pattern of population growth in the most recent actuarial report.
- Migration:
  - Overall net migration rate is based on the country actuarial report.
  - Distributed across groups, typically with younger working-age groups affected most.
  - Migration numbers are deducted from population of respective age groupings.
- Disability:
  - Disability rates are given per 10,000 of the population, based on previous actuarial reports.
  - Can change across gender and cohort, but assumed not to change over time.
  - Population at that age is multiplied by the disability rate.

### Benefits, Indexation, and Other Assumptions
- Benefits:
  - Age benefits grow in line with number of beneficiaries, real income, and inflation starting from the base year.
  - Invalidity benefits: base year adjusted for inflation and changes in historic coverage; number injured is a function of disability rates by cohort.
  - Survivor benefits grow by the historical average and are adjusted for inflation.
- Indexation:
  - Follows current CPI (plus real GDP growth) rule up to the point where the net replacement rate of a standard pensioner falls to 50 percent replacement rate.
- Other assumptions:
  - Non-contributory scheme held constant in real terms.
  - Employment injury grows in line with growth in the age or disability funds.
  - Administrative costs grow in line with inflation and historical average.
  - Investment Income grows in line with growth in the reserves and an assumed nominal rate of return based on historical performance.

### Data Limitations Affecting Reliability
- Projections are affected by shortcomings of data in the most recent Actuarial Review, including:
  - (i) data on formal employment by age cohorts;
  - (ii) demographic projections, including migrations, birth and death rates;
  - (iii) projections of life expectancy after retirement;
  - (iv) detailed data on survivors;
  - (v) information on likely performance of fund investments.
- Data on pensioners with accelerated years of service are not available; summary data were used for much of the costing information.

### Country Assumptions in Baseline Projections (selected Caribbean countries)
- Antigua and Barbuda:
  - Real Earnings Growth: 2.0% (2015), 2.2% (2040), 2.2% (2060)
  - Inflation: 1.2% (2015), 2.5% (2040), 2.5% (2060)
  - Real Investment Return: 2.0% (2015), 2.0% (2040), 2.0% (2060)
  - Contribution Rate: 7.7% (2015), 7.7% (2040), 7.7% (2060)
  - Mortality rate at 75: 35.0%
- Dominica:
  - Real Earnings Growth: 1.3%, 2.0%, 2.0%
  - Inflation: 0.5%, 2.0%, 2.0%
  - Real Investment Return: 1.0%, 1.0%, 1.0%
  - Contribution Rate: 10.8%, 10.8%, 10.8%
  - Mortality rate at 75: 35.0%
- Grenada:
  - Real Earnings Growth: 2.5%, 2.5%, 2.5%
  - Inflation: 1.7%, 2.5%, 2.5%
  - Real Investment Return: 1.0%, 1.0%, 1.0%
  - Contribution Rate: 9.0%, 9.0%, 9.0%
  - Mortality rate at 75: 35.0%
- St. Kitts and Nevis:
  - Real Earnings Growth: 2.0%, 1.5%, 1.5%
  - Inflation: 3.0%, 3.0%, 3.0%
  - Real Investment Return: 1.0%, 1.0%, 1.0%
  - Contribution Rate: 11.0%, 11.0%, 11.0%
  - Mortality rate at 75: 25.4%
- St. Lucia:
  - Real Earnings Growth: 1.2%, 2.5%, 2.5%
  - Inflation: 1.7%, 2.5%, 2.5%
  - Real Investment Return: 1.0%, 1.0%, 1.0%
  - Contribution Rate: 10.0%, 10.0%, 10.0%
  - Mortality rate at 75: 35.0%
- St. Vincent and the Grenadines:
  - Real Earnings Growth: 1.8%, 3.1%, 3.1%
  - Inflation: 0.9%, 2.3%, 2.3%
  - Real Investment Return: 2.0%, 2.0%, 2.0%
  - Contribution Rate: 10.0%, 10.0%, 10.0%
  - Mortality rate at 75: 35.0%
- Barbados:
  - Real Earnings Growth: 0.5%, 0.5%, 0.5%
  - Inflation: 2.5%, 2.5%, 2.5%
  - Real Investment Return: 2.5%, 2.5%, 2.5%
  - Contribution Rate: 18.0%, 18.0%, 18.0%
  - Mortality rate at 75: 26.8%
- Bahamas:
  - Real Earnings Growth: 0.8%, 0.8%, 0.8%
  - Inflation: 2.5%, 2.5%, 2.5%
  - Real Investment Return: 2.0%, 2.0%, 2.0%
  - Contribution Rate: 9.8%, 9.8%, 9.8%
  - Mortality rate at 75: 29.1%
- Belize:
  - Real Earnings Growth: 0.8%, 0.8%, 0.8%
  - Inflation: 2.0%, 2.0%, 2.0%
  - Real Investment Return: 2.0%, 2.0%, 2.0%
  - Contribution Rate: 8.0%, 8.0%, 8.0%
  - Mortality rate at 75: 69.7%
- Guyana:
  - Real Earnings Growth: 2.0%, 2.0%, 2.0%
  - Inflation: 2.5%, 2.5%, 2.5%
  - Real Investment Return: 1.0%, 1.0%, 1.0%
  - Contribution Rate: 14.0%, 14.0%, 14.0%
  - Mortality rate at 75: 30.9%
- Jamaica:
  - Real Earnings Growth: 1.0%, 1.0%, 1.0%
  - Inflation: 8.0%, 8.0%, 8.0%
  - Real Investment Return: 0.5%, 0.5%, 0.5%
  - Contribution Rate: 5.0%, 5.0%, 5.0%
  - Mortality rate at 75: 28.3%
- Trinidad and Tobago:
  - Real Earnings Growth: 1.5% (2015), 0.7% (2040), 1.0% (2060)
  - Inflation: 4.6% (2015), 3.0% (2040), 3.0% (2060)
  - Real Investment Return: 2.3% (2015), 3.9% (2040), 3.9% (2060)
  - Contribution Rate: 12.0% (2015), 12.0% (2040), 12.0% (2060)
  - Mortality rate at 75: 35.0%

*Sources: IMF Staff estimates and projections.*

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