Oran Hall | The enticement of the Tourism Workers Pension Scheme

The Tourism Workers Pension Scheme, TWPS, differs in many ways from other pension schemes but could hold the key to opening up the way to raise the level of participation in retirement schemes.

In last week’s column, we were able to see several ways in which the TWPS distinguishes itself from other retirement schemes. It is an umbrella which covers both employed people and self-employed people.

Although it provides coverage for workers who are employed in the private sector, the Government has contributed a significant sum, which is segregated from the contributions of members, to form the endowment fund, which will help to maximise retirement benefits for qualified members.

There are, therefore, two funds. One is the members’ retirement savings scheme, which receives members’ contributions to provide a pension and other benefits to them and their beneficiaries mostly at retirement. The other is the endowment fund.

The TWPS is a scheme in which individual members of a group related to each other by the industry in which they earn a living have their contributions being managed and invested collectively. Other retirement schemes differ. They are generally sponsored and managed by financial institutions, and membership is open to people who earn an income and are not participating in an approved pension facility.

The TWPS has the potential to be a very big scheme, and those responsible for managing it are aware of this and are bent on ensuring that it realises its potential according to Ryan Parkes, the chairman of the scheme, who outlined to me what is being done to achieve this objective in our discussion.

The goal is to grow the membership of the scheme to 20,000 in the current year. The initial growth was slow due in part to the dislocation caused by COVID-19, which upended the plans of many people who work in the industry.

Now that conditions are more settled, efforts are being made to have people who have registered become full members by making their contributions, the current level being 75%. There are also potential members who are focusing on other competing priorities at the expense of saving for their pension to be brought on board.

Mr. Parkes believes that there is enhanced scope for growth in light of the pace of growth in hotel rooms as seen in new hotels being constructed and ground being broken for others.

Payment arrangements have helped members to onboard and to maintain their membership. This is important considering that some financial institutions that offer retirement schemes have expressed concern that members have stopped making contributions or have been contributing irregularly. The TWPS uses direct transfers through commercial banks with which it partners to facilitate the transfer of contributions on a structured basis. This is particularly important for the self-employed, who do not have employers to deduct and remit their contributions.

The pension scheme managers recognise the value of education in getting people to buy in and thus become members, as well as to contribute more than the 5.0 per cent mandatory contribution, as members are allowed to make voluntary contributions such that up to 20 per cent of their income can be contributed to the scheme for their account.

It will increase its education efforts to highlight the significant benefit to be derived from the contributions and what they earn in the scheme being tax-free. Another important selling point to be highlighted is that in later years, a pension will make people less dependent on the Government for healthcare and the provision of support for day-to-day needs.

One important point that is not lost on the managers of the scheme is that the more people who are educated about pensions, the greater the level of involvement is likely to be. Thus, education efforts will not be limited to the tourism industry but will be extended to the wider society.

There is another area of focus in the education programme. Pension savings are beneficial to the wider economy as they provide funds for investment. As the economy grows, more employment and better jobs are created so that people can be better off generally.

Additionally, a strong economy creates more investment options and thus opens more opportunities for building diversified portfolios into which pension funds can be invested.

The scheme has been collaborating well with the administrator and the investment manager in conducting educational and sensitisation sessions and meetings to boost recruitment. But it has also been using the direct approach to workers in the industry to encourage them to get involved.

The active members of the TWPS have generally bought into a pension being a good safety net in the retirement years. They see a pension as a way to maintain a good- quality life in retirement and see it as a reward for their contribution to the industry and the economy.

The approach the TWPS is taking to get more people to become members should boost its membership, but it will take time, considering how cool Jamaicans are to saving for retirement.

The TWPS is quite different from other schemes, and I doubt it will be easy to replicate it. Other broad groups, however, in sports and entertainment, for example, may find a variation of this scheme as being fit for them if the financial institutions find it enticing.

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