Central Bank Governor: Covid causing people to spend and not save

CENTRAL Bank Governor Dr Alvin Hilaire said the covid19 pandemic has resulted in many people spending money on their immediate needs rather than saving for their retirement.

He made this observation during the virtual launch of the bank's 2020 financial stability report on Thursday.

Hilaire said living comfortably in retirement is something that old and young people should be thinking about. Focusing on private pension systems in Trinidad and Tobago, he said, "Basically, before the pandemic, we had some challenges to private pension systems in TT."

Hilaire said these included life expectancy increasing and, on a macro-economic perspective, sluggish growth which was affecting employment and contributions to pension plans.

"The pandemic didn't make things any easier. We had some more complications."

Hilaire said these additional problems included job losses and business closures which affected the contributions of individuals and companies to pension plans.

As a result of covid19, Hilaire said, "People were so stressed by the pandemic and to some extent, there is a focus now on the immediate...urgent health and family needs, employment, income, pessimism on surviving the virus."

He said some people take the view: "I will die anyway so why bother to save?"

Pension plans command tremendous financial resources in TT, he pointed out.

"Specifically over $55 billion..and I am just talking about private occupational pension plans...over a third of GDP. This is large."

Hilaire said this is very important for many people and "for some it's the only source of income."

He underscored the importance of saving for retirement, using the analogy of a person being able to buy $100 worth of doubles while they are working, but not after retirement because they have not saved for it.

The FSR report said as of last December, there were 182 active registered pension plans, of which 44 were sponsored by Government or government-related entities. Four pension plans were wound up last year and no new plans were registered.

Hilaire said the National Insurance System (NIS) stands at approximately $29 billion and covers 580,000 people.

Finance Minister Colm Imbert made similar comments in response to a question from the Opposition in the Senate in June

Imbert said UNC claims about the NIS facing imminent collapse were false.

"If nothing is done at this point in time, he said, "It is estimated that the fund will be depleted in 2043. It's a false premise."

Hilaire also said neither household or government debt poses a bigger problem than the other.

"It depends on the circumstances."

In the former, he said, "The distribution of household debt...it is not one company...it is hundreds of thousands. That in itself adds a certain stability, because it is hardly likely that everybody would be distressed at one time."

In the latter, Hilaire said a government is a single entity, but commands resources, policy, legislation and the ability to repay debt over time.

He also said TT is not in any danger of having sovereign debt risk crisis (defined as a situation where a country is unable to pay its bills).