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Most countries across the world have supported the adoption
of three-tier retirement systems: a mandatory
publicly managed social security system; a privately managed
occupational scheme as a second tier; and voluntary savings
as a third tier. The aim of these three-tier systems is to
provide stable, predictable and adequate income security throughout
retirement. Governments in the ECCU should also strive to
create coherent, efficient and effective layers of public
and private protection.
In the context of the increasingly complex retirement issues
and the challenges of managing ECCU economies in turbulent
times, it was recommended that the Monetary Council establish
a Commission on Pension and Pension Administration Reform
to review and make recommendations to achieve the goals of
stable, predictable and adequate income security throughout
retirement.
Background
The Commission is concerned with the second tier of occupational
pension plans, both those of government (the public officers
pension plan) and those employer sponsored plans in the private
sector (including those sponsored by statutory bodies).
Countries in the ECCU are faced with rising expenditures
to meet government pension liabilities, uncertainties as to
the viability of private pension plans, and inequities in
coverage, all at a time when life expectancies are increasing
and numbers in the cohorts, both of retired persons and of
those approaching retirement, are increasing. There is an
urgent need to address these issues both from the viewpoint
of governments, faced with regulatory, sustainability and
equity issues, and from the viewpoint of pensioners and prospective
pensioners who are concerned about facing futures without
the guarantee of adequate pensions.
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Public
Pensions
Most countries in the ECCU have public officers pension schemes
which are non-contributory and operate on an unfunded basis.
All pensions and gratuities are charged to the government
budgets as current expenditure and budgeted accordingly in
each financial year. The relative cost of such schemes tend
to increase steadily and might ultimately reach rather high
levels which could impair government finances, particularly
if the schemes have liberal benefit provisions in force. In
addition to the potential for the schemes becoming insolvent
and forcing drastic curtailment of their benefit provisions,
rising costs will mean a reduction of funds available for
governments to finance public programmes of higher priority
such as education and public health.
In some ECCU countries there is no attempt to integrate or
coordinate pension provisions between the national social
security pension systems and the government pension scheme.
This essentially imposes a double burden on public finances,
since government contributes to the social security pension
(as employer) and entirely funds the public service pension.
In fact, the joint pensions could exceed by far the replacement
ratio affordable by industrialized countries. In our societies
where a large number of persons have no pension entitlement
at all, this is untenable. A well designed occupational pension
scheme should take into account the benefits of the national
social security system to attain adequate levels of joint
pensions aiming at a replacement ratio that ensures a basic
economic security after retirement from active employment.
In one member territory, Anguilla, a rationalization of the
pension scheme for public officers effective 1 January 2004
has accomplished significant improvements, including a reduction
in accumulated actuarial liabilities due to the deferment
of the normal retirement age, the reduction in the pension
formula, and contributions made by Government (as employer)
and public officers.
In the absence of reforms, the former pension scheme would
have been unsustainable in financial terms to the government,
and would have required drastic curtailment to the benefit
provisions in the future.
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Private
Pensions
Across the ECCU, there is an insufficiency of regulatory provisions
governing private pensions and some persons who have looked
forward to pensions from their employers face uncertainty
in retirement because of the failure of those pension plans
or the disappearance of the plan sponsor, their employer.
This has consequences both for the governments and for the
national social security systems which might be forced to
provide for these individuals in the event of such failure.
Only governments can take the initiative to foster an environment
in which rights to both private and public forms of social
protection can be regulated and protected. However, governments
cannot do everything and stakeholders – employers, trade-unions,
non-governmental organizations, community-based organizations
and individuals – each have important roles to play
in ensuring the provision of social protection to members
of society.
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Proposed role and operations of the Commission
on Pension and Pension Administration Reform |
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It is proposed that the Commission on Pension and Pension
Administration Reform will be composed and operate in
a manner similar to that of the Commission on Tax Reform
and Administration.
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Role
of the Commission |
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The Commission should: |
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1. |
Direct the Research Staff
in its research activities on the issue of Pension Reform. |
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2. |
Review the economic and financial context
of pension reform. |
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3. |
Review the existing government pension
systems. |
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4. |
Review the degree to which there is integration
or coordination with national social security systems. |
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5. |
Examine the Anguilla experience. |
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6. |
Review pension arrangements in the private
sector and in statutory bodies. |
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7. |
Identify best practices. |
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8. |
Identify governance, administrative and
legal gaps. |
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9. |
Establish benchmarks and indicators. |
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10. |
Make recommendations for
improving and harmonizing the administration of private
and statutory bodies’ pension plans.
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Composition
and Meetings
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Between five
and seven eminent persons from the ECCU should be named
to the Commission. A Chairperson should be named. The
Commission should meet at least monthly but as frequently
as needed. Secretarial support should be provided by
the ECCB.
The Administrative Assistant, designated Secretary
to the Commission, should consult with the Chairperson
of the Commission on: |
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1. |
Notification of Meetings |
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2. |
Preparation of Agenda |
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3. |
Preparation of Meetings |
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4. |
Preparation and Circulation of Minutes |
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5. |
Communicating with Research Staff |
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and undertake other duties
as assigned by the Chairperson.
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Operations
of the Commission |
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The Commission
should: |
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1. |
Determine objectives and structure of the Final Report. |
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2. |
Based on the structure of the Report, identify and assign
areas of research either among the Commissioners, the
Research Staff, or through consultancy. |
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3. |
Discuss the issues identified at regular meetings. |
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4. |
Hold discussions with representatives of the public
and private sector throughout the Currency Union to obtain
input on the critical issues. |
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5. |
Document deliberations throughout the Currency Union
to provide a basis for the Final Report. |
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6. |
Circulate the Draft Report to member governments and
discuss the Draft Report in consultations with representatives
of the private and public sectors. |
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7. |
Present the Draft Report, together with input from the
above consultations, to the Monetary Council. |
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8. |
Prepare a Final Report and present it to the Monetary
Council. |
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9. |
Establish a Technical Group to implement the recommendations
contained in the Final Report. |
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The ECCB should pursue financing for the
operations of the Commission.
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Institutional
Support for the Commission |
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The ECCB should
arrange institutional support for the Commission. |
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Role
of Research Staff and Administrative Assistant |
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The Committee
of Social Security Research Officers, and the Research
Department of the ECCB, would provide technical support
to the Commission in undertaking research on issues identified
by the Commission. This involves: |
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1. |
Gathering and analyzing data; |
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2. |
Conducting interviews; and |
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3. |
Undertaking surveys. |
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The Commission would engage
actuarial support as necessary.
The Administrative Assistant, in conjunction with the
designated Research Head, would be responsible for coordinating
the activities of the Research Team. The Administrative
Assistant would also be the Chief Accounting Officer.
Two Advisory Bodies would assist the Commission, namely: |
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1. |
The Joint Meeting of ECCB,
Directors of Social Security Systems |
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2. |
The Joint Meeting of ECCB,
Permanent/Financial Secretaries. |
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Quarterly reports
from the Commission shall be discussed at the joint meetings.
The ECCB should communicate the recommendations of the
meetings to the Commission.
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Commission on Pension and Pension Administration Reform |
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CARTAC/ECCB Regional Conference on National and Public Sector Pension Plans: Issues and Reform (June 2009) |
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Update on the Work of the Commission on Pension and Pension Administration Reform (June 2009) |
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First Interim Report - Commission on Pension and Pension Administration Reform in the Eastern Caribbean Currency Union (ECCU) (October 2008) |
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