Plug sinking pension ship

The recent announcement by the Jamaican Government that funds in the national insurance scheme are likely to be exhausted within the next 20 years, based on the net outflow, is a timely reminder that the management of these funds has been woefully lacking. However, there is much time to act decisively, and to take corrective measures, to avert such a potentially colossal outcome.

As I see it, three are three major factors that impact the continued viability of the National Insurance Scheme (NIS), as indeed, all pension schemes.

First, there is the issue of those income earners who continue to stay outside the tax net for one reason or another. And these earners have never been part of any organised system that does regular contribution to the national insurance and/or pension schemes.

Second, the accelerated rate of normal and extra-normal attrition has robbed the coffers of the National Insurance and pensions schemes, respectively, of much-needed funds.

Third, it must be noted that critical to the viability and sustainability of the NIS and pension schemes, is the quality of investments undertaken by the fund managers and the kind of oversight management provided by actuaries and trustees.

The matters of the national insurance and pension scheme take on greater significance when one considers that government spending is vastly curtailed, and dictated by a standing IMF agreement, which has become necessary to improve the national housekeeping exercise. Consequently, employment in the public sector has been frozen, at best, or is declining, thereby reducing contributions is to the national insurance and pension schemes.

PRIVATE-SECTOR CONTRIBUTIONS

This is also true for the private sector, which has been continuously and systematically shedding head count to improve overall efficiency and shoring up bottom lines in a very difficult and mostly stagnant economy.

The truth is, a lower head count means fewer NIS and pension contributions. It is, therefore, imperative that the investments, relative to these schemes, incorporate international best practices as they relate to the management of these funds.

In the short to medium term, several questions will have to be asked, and answers provided, with respect to the following:

1. What constitutes the best investment portfolio mix for NIS and pension funds?

2. Based on current life expectancy, should there be a revision to the normal retirement age and to NIS and pension payout? And what age should this be?

3. Is there a need to rework the formulae used to calculate NIS and pension payouts, relative to the projected number of retirees, and quantum of funds in these schemes that also include any surplus that might accrue?

4. Specifically as it relates to pension schemes, what role, if any, should the surplus play with respect to pension payouts?

However we choose to view the matters of the national insurance and pension schemes, one thing is sure: These schemes must be operated by competent and prudent managers who use sound and robust measures that protect these funds, making such schemes viable and sustainable, to provide amply for the contributors in their golden years.

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