Make pension savings mandatory for Jamaicans, actuary suggests
Published:Friday | August 21, 2020 | 12:22 AM
Chief actuary at Actman International Limited, St Elmo Whyte, says the Government should make pension contributions compulsory for Jamaicans as security in their retirement.
Contributions to the national pension scheme is compulsory for employed persons, but compliance is below par, while private employers are not required to set up schemes for their workers.
The actuary said at the Sterling Asset Management virtual investor forum, in which he was a panellist this week, that there must be a way to make pension savings compulsory, but declined to say how it could be achieved.
Whyte was responding to a question posed by Marian Ross, vice-president of trading and investment at Sterling Asset Management and moderator of the panel discussion, as to what national policies he thought would improve the health of local pension and retirement funds.
Whyte said that when Barack Obama, as the president of the United States, achieved compulsory health insurance through the Patient Protection and Affordable Care Act – otherwise called the ACA or Obamacare – he added a penalty to promote compliance. Anyone due a tax return but had not signed up for the ACA would see the penalty deducted from what they are owed.
“Nobody quarrelled with that,” he said. “I believe that the Government should look at some way to, in a most friendly manner, make pension become compulsory. There are many ways to do these things without it becoming offensive,” he added
The actuary also suggested that the Government improve the National Insurance Scheme, NIS, for the benefit of people at the lower end of the market especially, saying it could better supplement any pension they receive from the private sector.
Jamaica is currently studying the development of a micro pension system to boost retirement savings. It is the latest initiative to gin up savings towards retirement in a context where pension coverage is low.
At the state level, although the contributions are mandatory, payments into the NIS are said to be tracking at just 38 per cent of the employed labour force; while in the private market, just 10 per cent of the employed labour force contribute to a pension or retirement scheme.
The NIS, through pension fund manager National Insurance Fund, manages a portfolio of around $135 billion, or more, while private pension schemes hold assets of $700 billion.
Noting that the maximum pension payable to persons at retirement is 75 per cent of a retiree’s final salary, the actuary questioned why it could not be 90 per cent or 100 per cent.
“Who is it hurting, really?” he asked.
Another panellist and Chairman of the ATL Pension Fund, Keith Collister, agreed with Whyte about the cap, especially since the idea behind a pension is for persons to live comfortably in retirement .
“I really don’t see why they cap this at 75 per cent, because what we should be doing is encouraging people to save for their pension,” he said.
“I do think that they need to change the way we think about pension, and arbitrary restrictions of that nature should go,” he added, having noted that people worldwide are living longer.
As to how persistently low interest rates has affected the investment strategies of pension fund managers, President and CEO of Sterling Asset Management Charles Ross said the COVID-19 pandemic has reignited the downward trend.
“Rates had started to rise in 2017 and onwards in the United States, but with COVID we have gone right back to zero to 0.25 per cent levels,” Ross said.
“That’s great for the bonds that you own, because lower interest rates mean higher bond prices, and if you bought bonds prior to this then you are doing very well,” he said.
“The problem, though, is going forward. What we are seeing now is that interest rates on the higher-quality bonds are very low. Interest rates on the not-so-high-quality bonds are also falling, so, really, you have to do a lot of research to find the gems in the marketplace and you really have to hold on to them,” said Ross.
Sterling Asset expects interest rates to stay low for the next three to four years, “or maybe even longer,” he said.