Social security reforms and their implications for the Caribbean

As in many other countries, the viability and sustainability of social security
systems in the Caribbean is of concern to policy makers. Although systems in the region
remain relatively young, liquid and healthy at this time, timely reform is necessary to
prevent a crisis in the future. Reform is required to grapple with population ageing, a
fairly large informal (non-contributing); sector in some countries, high open
unemployment and the impact of Human Immunodeficiency Virus/Acquired Immune
Deficiency Syndrome (HIV/AIDS);. Caribbean social security systems (pension branch);
are defined benefits pay-as-you-go (PAYG); systems that are largely publicly managed.
The performance of the systems has been creditable on average, with the accumulation of
substantial reserves though administrative costs are too high.

Some countries in the region have pursued parametric reforms-mainly increases in
contribution rates and retirement age and adjustment to wage ceilings to maintain the
viability of the systems in the future. These reforms could, through various transmission
effects, impact on sustainability of social security systems themselves, but also labour
markets, capital markets and economic performance.

Importantly, in considering reform options, countries should not rule out
including a structural reform pillar, similar to an individual retirement account, which
could allow contributors to match their appetite for risk with desire for higher returns.
Moreover, there is the possibility that this could have a beneficial effect on savings and
investment. Overall, what is clear is all countries should move expeditiously to reform
their social security systems and not delay until crisis is on their doorsteps.