Government to Embark on Another Phase of Pension Reform

The Government will be embarking on another phase of pension reform during fiscal year 2022/23, which begins on April 1. Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, said the programmed undertaking aims to make pensions attractive to more Jamaicans, increase the number of working individuals preparing for retirement, and expand the pool of savings in the industry.

He was speaking during Mayberry Investment Limited’s virtual monthly investor forum, on Wednesday (January 12). Dr. Clarke said data indicate that just fewer than 20 per cent of Jamaicans have a pension, noting that a significant percentage of these persons are government workers. “That’s not desirable. For us to have greater social stability, we want to ensure that more persons are providing for their own retirement,” the Minister added.

In this regard, he said work is “far advanced” on the requisite legislative schedule, which will comprise a “slew of reforms”. “It has taken a while to get through [those]. But I’m extremely confident that [come the] next fiscal year, we’ll be able to table [that submission] and then take it through its various stages. That will introduce flexibility/greater options [and] greater diversity [which] will attract [more] people to pensions,” the Minister added.

Dr. Clarke said among the proposed reforms is portability to facilitate the transfer of employees’ contributions and those made on their behalf by employers, from one entity’s pension fund to another, where such exists, when beneficiaries change jobs. The Minister highlighted challenges with the prevailing arrangement relating to this undertaking, describing it as a “hindrance” for persons contemplating participation in workplace pension plans.

He pointed out that in several instances, “if you change your job… the only option you really have is to get a refund of your contributions or to get a deferred pension… when you’re 65”. Dr. Clarke pointed out, however, that while 95 per cent of individuals in pension plans take back their contributions, “they don’t get back what the employer contributed on their behalf”. “What we need to do, like happens in other countries, is to ensure that when you leave your job [for another]… that pension that you saved for, you can just sign a form and have those monies, including the employer’s contribution, transferred on your behalf to the pension fund of the company that you’re going to work for,” he argued.

The Minister added, however, that “if the company that you’re going to work for doesn’t have a pension fund, [then the funds should be] transferred to an individual retirement account,” while pointing out that this legislative engagement is “very important”. Dr. Clarke, who said he is “extremely confident” that the latest slate of proposals will be tabled in the new fiscal year, noted that its passage will spur “massive growth”.

“We can expect that we’re going to have a big growth in the pensions industry… which is good news for financial services, good news for pension fund managers, good news for the citizens of Jamaica and good news for the economy, as there would be more funds to invest in productive enterprises,” he pointed out.The Government previously amended the Pensions Superannuation Funds and Retirement Schemes Regulations to broaden the range of permissible assets in which pension plans can invest.

These include bonds issued by companies that have an investment-grade rating from a recognized rating agency, bonds issued by companies listed on the Jamaica Stock Exchange, and certain equity or debt of private companies. The equity or debt should be established under the laws of Jamaica provided that, in aggregate, these amounts do not exceed a maximum of five per cent of the pension fund’s assets. This enabled pension funds to invest in private equity and venture capital for the first time.