The pension reform : a bitter pill ?

Pension reform is again in the news. With an ageing population, the universal pension payment seems to be a real economic burden in the near future, hence calling for radical reform. This issue has been discussed for over a decade now, but no definite solution has ever been found. Will reforms go through this time?

Ageing population is affecting many countries and Mauritius is not spared. According to global statistics, in 2020, the number of people aged 60 or over in the world will have already crossed the billion mark, of which more than 700 million would be living in developing countries. Locally, figures from Statistics Mauritius indicate that the proportion of people aged 60 and over has already exceeded 15% of the total population in 2016 (compared to only 9% in 2000).

This proportion will reach 22% in 2026, 26% in 2036, 29% in 2046 and 35% in 2056! In 2016, in Mauritius there were 194,815 people aged 60 or over, and this figure will rise to 322,285 in 2036 and 354,518 in 2056 (see tables). On the other hand, the size of the active population (20-59 years old) which was estimated at 730,188 in 2016, will reduce in 20 years to reach 657,699 in 2036 and then 490,330 in 2056.

This means that, if in 2016, there were about 3.7 active persons for every retired person, by 2026 there will be only two active persons to support each retiree and the ratio will plunge further to only 1.3 to 1 in 2056! The pushing of the retirement age to 65 will have only a negligible effect on the situation.

These realistic projections are enough to alarm any government. The economic impact of an ageing population is huge. First, there is the issue of the ability to pay the universal pension. As the number of beneficiaries grows exponentially, the number of people of working age decreases, which means there will be fewer taxpayers to support the economy.

An ageing population also means a larger budget for health services. An ageing population will redefine the economy, causing a decline in the demand for certain products and services and resulting in a contraction on the entire economy.

In 2010, the total basic retirement pension was estimated at Rs 6.2 billion. For the financial year 2016/2017, the state has disbursed more than Rs 15 billion solely for the payment of the old-age pension. This figure could more than double in 2036. Already, the debate has started about pushing the age of retirement to 70 years.

Eric Ng : “Encourage the young to subscribe to a pension plan”

Economist Eric Ng believes that one cannot overnight push the age of retirement to 70 years. He says we need to maintain a balance between keeping our seniors in the job and creating jobs for our young people.

“Of course, senior citizens can bring their experience and know-how, but the age of retirement at age 70 is not suitable for all sectors. For some activities that require a lot of physical effort, you cannot make people work beyond 60 or 65 years.”

Eric Ng says there are other ways to solve the problem of paying the pension. He also suggests that the government provides incentives to encourage young people to take up a private pension plan.

Arvind Nilmadhub : “A monthly pension of at least Rs 8,000 is possible”

Economist Arvind Nilmadhub is adamant that the universal pension will not be an economic burden if there is good management and planning. “According to my calculations, we can even increase the pension from the current Rs 5,000 to Rs 8,000 and the Mauritian economy can pay this amount. Our seniors deserve a decent life, those who have worked hard all their lives and contributed to the economy must be able to receive their full pension. I am for means testing but we must see how and who to target so as not to penalise the deserving ones,” argues the economist.

According to him, the billions of rupees that are paid as pension represent a massive injection into the economy and has a huge multiplier effect. This money benefits not only retirees, but a whole chain of people and entrepreneurs. Thousands of traders, entrepreneurs and others survive on pensioners’ expenses.

“The more we increase the pension, the more the economy will benefit. If we manage public spending better, avoid wastage, reduce inefficiencies and invest properly, Mauritius will have the ability to pay a pension of Rs 8,000 to Rs 10,000 to senior citizens. Moreover, the state has a thousand and one ways to generate massive revenues but it does not exploit these sources optimally.”

The economist also argues that he is not in favour of raising the retirement age to 70 years. According to him, after 60 years, the productivity of a person will decrease and indirectly the economy will lose billions by making seniors work to save on pension. “Let’s not be penny wise and pound foolish, as the English says,” he concludes.

Jane Raggoo : “It takes a real national debate”

Jane Raggoo, one of the leaders of the ‘Confederation des Travailleurs du Secteur Privé’ (CTSP) says the government has neither the mandate nor the moral right to consider raising the retirement age beyond 65 years.

“We understand the problem of an ageing population, but we need a real national debate where everyone has their say before making a decision.” The unionist believes that not everyone can work beyond a certain age.

“It’s not just activities that require a lot of physical effort. Even activities that require mental effort are concerned. For example, it is difficult to see people continuing to work in the ICT / BPO sector beyond a certain age because they will be tired.”

Frankie Tang : “Incentives for pension plans”

Financial services consultant Frankie Tang says it’s time for the government to come up with attractive incentives to encourage adherence to pension plans and other financial products.

“The future looks bleak for future pensions, we do not know what the pension policy of future governments will be, so I believe young people should take steps to ensure they are not left out. We need incentives for the insurance and pensions sector. It will also help ease the burden on the government. “

Darmen Appadoo : “Is raising retirement age a solution”

Social worker Darmen Appadoo says he is not convinced the solution lies in the raising of the retirement age. He believes if there is proper management of funds, the problem, should not arise.

“What will happen if tomorrow the problem is not solved, will we then raise retirement age to 75 or 80? I believe if the funds are well managed and well invested, they should generate good income to sustain payments.” He added that there should be more transparency so that the public knows how funds are being invested and what the returns are.

Higher life expectancy

Living longer is both a sign of progress and a constant challenge. With the increasing number and proportion of older people in both developed and developing countries, more and more people will reach an age when the risk of chronic and debilitating diseases is significantly higher.

Ageing is therefore a new and major concern for public health, both nationally and internationally. In 2020, the UN predicts that three-quarters of deaths in developing countries may be related to ageing. Population surveys in several African countries indicate that the prevalence of hypertension and diabetes is increasing.

In the Seychelles, 22% are hypertensive, in South Africa 16%, in Mauritius 14%, while the proportion of diabetics is between 4 and 15% of the population in these three countries. Population ageing is also expected to exacerbate the extent of mental health problems, with the increasing life expectancy of people with mental disorders and increasing numbers reaching an age at which they are more exposed to ailments. The number of cases of senile dementia in Africa, Asia and Latin America could exceed 55 million in 2020.

High demand for foreign workers

A drastic drop in the active population will culminate in a lack of manpower in the country. Mauritius is indeed already facing this phenomenon.  The prime minister himself recently stated that the country has a labour shortage. It seems that the country will need to rely on foreign labour for a long time to come, not only in emerging sectors but also in traditional sectors like healthcare, construction and the services industry.