Much has been said in the past few weeks regarding pensioners. It’s clear election time is upon us as it seems as though only then do our pensioners deserve the spotlight. I want to emphatically state that I believe it is a quintessential human right for all members of a society to be able to live a dignified fulfilling life. One thing very few seem to highlight is that the problem our pensioners face is a multifaceted one that has its roots in bigger problems that affect not just the pensioners but also the younger generation, effectively creating a negative spiral that is only salted to get worse if we don’t take a long-term approach to solving it.
There are 4 main factors working against pensioners:
- People are getting older (which should not be a bad thing, but which highlights a serious problem with our current pension schemes). The older people get, the longer a pension needs to be paid out.
- Poor investment choices by pension funds (or co-mingling of funds but that’s a topic for a whole other article).
- Inverted age pyramid (declining birth rates).
In this article I will focus on the latter two (the inverted age pyramid and inflation). The makeup of our society is under pressure. In a recent lunch session with six young highly educated individuals between the ages of 28 to 35, three were still living at home, three renting, zero owned a house and, zero had any kids. It may be a coincidence; however, the trend doesn’t look promising and seems to be a problem globally. Stats show that:
- An increasing number of millennials (people around 30 years old) are once again living with their parents. Some estimates range up to 50%
- The global birth rate is in decline, with developed countries showing birthrates as low as 1,36 children per woman (Japan). The recommended ‘replenish amount’ is 2,1.
This decline in birthrate is having an impact on the makeup of societies creating a so-called inverted age pyramid with fewer young people at the bottom and an increasingly large top of older persons. The below image is a decent representation of such an inverted age pyramid.
You may be asking yourself, what’s wrong with that? The issue is that many countries have pay-as-you-go pension systems, which means that current workers are paying for the benefits of current retirees. When there are fewer workers to support the retired population, this can create a burden on the pension system that may be difficult to sustain. In some cases, governments may need to increase taxes or reduce benefits in order to keep the system afloat. As we’ve seen in recent years governments are scrambling as the calculations are likely to show that the model is no longer sustainable. Even the Netherlands, a country often heralded for having its affairs in order, seems to be struggling to tackle this issue. The pension age is at the time of writing 66 years and 10 months. With them steadfastly increasing it to 67 next year. Even here in St. Maarten this trend seems to have taken a foothold, with the pension age being raised from 60 just a few years ago to 65 now, and who knows where it’ll end. When the time comes for my generation to retire, we’ll be rolling into work on scoot mobiles at the ripe old age of 80 years old.
All kidding aside though, the trend is worrisome. Add growing inflation on top of that and keeping people working & paying into the scheme longer may not be enough. The rising cost of goods and services means that pensioners are struggling to make ends meet, and their purchasing power is declining. This is a particular problem for those who are on fixed incomes, as they are unable to adjust their spending to account for the increased cost of living. As a result, many pensioners are finding it difficult to afford basic necessities such as food, housing, and healthcare. The effects of these challenges are not limited to pensioners alone, however. The younger generation is also being suppressed, and this has significant implications for social cohesion in general. Many young people are unable to leave home and start their own lives due to the financial burden they face. This has led to the rise in the percentage of young people still living at home mentioned earlier, which is contributing to an overall decline in social mobility.
So, are we all doomed? No, however, thoughtful long-term planning is required to mitigate the issues faced. Ultimately, the challenge of inflation and other economic and financial issues is not one that can be solved overnight. Steps need to be taken to provide the younger generation with opportunities that were afforded to the older generation. Affordable housing, meaningful wages, access to capital, and a thriving day care industry are just some of the initiatives that can help steer us to welcoming in the next generation.
As for inflation, this problem is more nefarious and a direct consequence of the USA going over to a fiat currency system in the 1970’s that is not based or backed by anything but trust in the almighty dollar. How to then mitigate that is a topic for discussion in and of itself, however with the introduction of the new Caribbean Guilder, coming early 2024, it presents us with a unique opportunity to create a currency that would be once again backed by physical gold, the US dollar, other world currencies, and bitcoin. If the central bank were to do so, steadfastly investing, over the course of the next 5 to 10 years, in hard assets to back our currency, it provides two opportunities. The first is having a so-called ‘spender’ and ‘saver coin’. We would save our own money in Caribbean Guilders maintaining the 1.8 peg for as long as deemed necessary.
However, if the inflation in the states reaches critical levels (fueled by incessant money printing), or once our physical assets have reached a certain threshold, we can then de-peg from the dollar and have one of the strongest currencies in the world. The US dollar would then become our ‘spender coin’ used for purchasing items. This elevator pitch doesn’t do the idea justice; however, we don’t have to look that far to see an example of a country that has started taking bold steps to escape the clutches of not only poverty but also the grip that the US and the IMF have over the rest of the developing world. El Salvador, through Nayib Bukele has set a trend (definitely worth it to research more about the steps he has taken). The country has embraced Bitcoin and cryptocurrencies, making Bitcoin (not to be confused with Bitcoin Cash or any other (shifty) cryptocurrency) legal tender, is tackling the problem of gangs and crime, and is slated to become a hub of innovation and a shining example of what is possible with bold leadership. Leadership that is willing to take action and pursue policies that support the economic well-being of all citizens.
The country of St. Maarten is faced with an uphill battle. Global macro-economic and fiscal conditions are only slated to get worse. In order to soften the blow of what’s to come we need our best and brightest tackling the issues, thinking long term, and coming up with bold, actionable steps that can set us up for success in the future. What we don’t need is more of what we have been having. Leaders that are stuck in the past, focused on a one pillar economy that has proven to be unreliable in times of global uncertainty. Come election time, please, please, please keep that in mind as it’ll be critical for this nation’s survival.