Tourism workers pension scheme up and running

The Tourism Workers Pension Scheme (TWPS) came into being upon the enactment of The Tourism Workers Pension Act 2019. A defined contribution pension scheme, it is the source from which tourism workers and self-employed workers in the tourism industry are to be paid retirement benefits in respect of each member, and ancillary benefits to beneficiaries.

It is to provide retirement benefits for members upon normal retirement, early retirement or late retirement, as well as benefits to members due to ill-health, or a disability, and to the beneficiaries of a member upon the death of that member.

To be eligible for membership in the TWPS, individuals must be permanent or contractual workers in the industry, or self-employed people who serve in the industry. The range of membership is therefore quite wide and includes hotel workers, craft vendors, red cap workers, and workers at attractions.

I recently had the opportunity to look at the progress of the TWPS in a discussion with Ryan Parkes, chairman of its board of trustees, which has ultimate responsibility for its operations, including appointing its administrator and investment manager. Much of what follows is from that discussion.

The TWPS commenced operations in 2020, but was not officially launched until 2022 due to the COVID-19 pandemic. A particularly special, if not unique feature of the scheme is the provision of one billion dollars by the Ministry of Tourism, and the Ministry of Finance and the Public Service to seed it.

This was used to establish the Endowment Fund (EF), which is a permanent fund to help maximise retirement benefits to qualified members. In particular, it “grandfathered” those close to retirement when the scheme was enacted as they had little time to contribute enough to get a good pension.

The value of the EF was approximately $1.23 billion at December 31, 2023, made up of the initial $1.0 billion and interest earned on interest-bearing financial instruments and capital appreciation on other assets.

Another fund, the Members’ Retirement Savings Scheme (MRSS), was set up to be funded by the contributions paid by tourism operators on behalf of members of the scheme in their employment and the mandatory and voluntary contributions paid by members. It was also to receive assets transferred by the trustees for members transferring from other pension schemes or plans, as well as interest, dividends, and other investment income accruing from the assets of the scheme.

Members started to make contributions to it in March 2022. The compulsory contributions of the employed were made at the rate of three per cent of their salary, which was matched by their employers. The self-employed contributed three per cent of their income. Contributions are payable monthly or annually.

The employed, having a more reliable and structured flow of income, find it convenient to contribute monthly, but the self-employed tend to find it better to make their contributions annually in a lump sum.

The contribution rate has increased to five per cent since January 2023.

At December 31, 2023, the value of the MRSS was approximately $1.293 billion, inclusive of pension contributions, capital appreciation, dividends and interest. The value is a net figure as it was arrived at after deducting expenses, the main ones being administration fees, trustee fees and investment fees. The contributions made to it in 2023 amounted to $904.6 million, and interest and dividends earned accounted for approximately 60 per cent of the income, unrealised capital appreciation accounting for 40 per cent.

Members are able to know how much they have in the retirement scheme because each has a retirement savings account to which contributions and the earnings on them are credited.

Although 9,122 people had registered at December 31, 2023, meaning they had signed and submitted the relevant forms, only 6,863 were members, meaning they had commenced making their contributions. Of the members, 96 per cent were employed and four per cent were self-employed; and 81 per cent were between the ages of 21 and 50, notably 36 per cent being between 31 and 40.

The increase in the contribution rate from three per cent to five per cent has already positively impacted the level of inflows and thus the size of the TWPS. The age profile of the retirement scheme suggests that the level of outflows to pay retirement benefits will be low for a long time, and even if members should leave it in relatively big numbers, that should not stymie its growth, as they have the option of leaving their funds in the scheme.

How fast the TWPS grows hinges on the people for whom it was set up buying solidly into saving for retirement by becoming members and by making voluntary contributions.

We will continue our look into the TWPS in the next column.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email finviser.jm@gmail.com