By Dennise Williams, Staff ReporterPENSION PLANS are big business. Combined, the monthly contributions of working Jamaicans have allowed the coffers of both public and private pension plans to grow to approximately J$68 billion or US$1.13 billion.
However, the exact figure of assets held, liabilities owed, or surpluses generated cannot be stated as there are no comprehensive reports on the private pension fund industry.
The Government hopes to change this with the introduction of legislation that would give the Financial Services Commission (FSC) the power to regulate the industry. According to the Statistical Institute of Jamaica (Statin) as at October 2002, there were 942,300 employed Jamaicans. The state pension scheme, the National Insurance Scheme (NIS) collects from 450,000 persons. But the monthly contributions of that number of workers, representing 17.1 per cent of the entire population of 2,626,100 persons has enabled the NIS assets to grow to J$27.6 billion.
It is considered to be the largest pension fund in the Caribbean. The 829 private pension funds, on the other hand, each hold their numbers close to their vest. The estimated value of the private schemes is said to be in the region of J$40 billion. And the number of working Jamaicans contributing to these private schemes is anybody's guess. That does not sit well with the Government. Explained State Minister for Finance and Planning, Fitz Jackson, "that is the problem, without regulation we cannot determine the amount of money held or the number of persons who are a part of each private pension plan. Right now, there is no regulation of the management of the pension funds. The proposed legislation will prescribe what they can do in terms of management and other operations."
The legislation referred to by Jackson is the National Pensions Act. The aims of the legislation is outlined in The White Paper The Reform of the Pensions System in Jamaica: The Proposed National Pensions Act. The White Paper seeks sweeping reform. Below are samples of what the legislation seeks to address.
Licensing and registration requirements
a. All approved pension funds established in Jamaica must be registered with the FSC.
b. All managers/administrators of Pension funds must be licensed.
c. All trustees of pension funds must be registered by the FSC.
d. Licenses/registration can be cancelled/revoked for cause or refused.
Information Requirements to be submitted to the FSC by pension funds
a. Annual audited accounts and reports on the membership within nine (9) months after the end of the financial year. These should include full details of the assets.
b. Actuarial valuations and reports on solvency at least once in each three-year period, within one year after the due date.
c. The regulatory authority may reasonably require any other information as from time to time.
Members of a pension plan shall have recourse to the FSC in the event that they consider their best interest are not being served or are being jeopardised in any way.
At least 80 per cent of the market value of the assets of the fund must be invested in Jamaica.
A pension fund shall not own more than 30 per cent of the voting shares for any corporation.
No more than 10 per cent of the market value of the pension fund may be invested in a single investment, or directly in the company or in any of its affiliated entities/subsidiaries.
Investment in real estate required for the occupancy or expansion of the business of the institutional investor is prohibited.
No more than 5 per cent of the market value of a Pension Fund may be invested in the business of the sponsoring employer.
Plan winding up
In some instances there may be residual surpluses after completing the process of winding-up of any fund/scheme, final distribution of the remaining surplus/residual assets will be allocated in the following order of priorities:
a. Current pensioners and beneficiaries
b. Active members, deferred pensioners, and their beneficiaries
c. The sponsoring employer/employers
And this point on surpluses is a very sticky one. If the pension fund does well, who gets the surplus? If the pension fund is mismanaged, who gets the blame and punishment? Currently, how surpluses are handled is really dependent upon the individual pension fund. According to the FSC, "Jamaican pension fund law is built on Old English trust law. Therefore, it is the private pension plan documents that speak to how the pension plan is worked. But at this current point, we don't have the legal authority to speak on pensions." At Barita Portfolio Management, our contact revealed that surpluses are, "a vexing issue."
SURPLUS SPLIT
FG was informed that surpluses could come about when the pension fund closes. When this happens said our source at Barita, "sometimes the surplus is split down the middle between the contributors and the company." In regards to the surpluses earned at year-end because of prudent management, "depending on the what the trustees decide, they could give bonuses to the pensioners, but they cannot be compelled to do so." Life of Jamaica (LOJ) is considered to be the market leader of the private pension fund industry with around 50 percent share. A manager speaking on the condition of anonymity informed FG that ownership of surpluses depends on many factors. "At any one point in time, a surplus belongs to either the company or the contributors. Some of the factors to consider are who owns the plan (defined benefit vs. defined contribution) and what created the surplus in the first place. If a plan gives the employer all the maximum benefits under the law, it is not unrealistic for the employer to claim the surplus. It is the surplus that would provide continuing benefits to the already retired." Helen Christian, managing director of Grace Pension Management Ltd. agrees. She states, "the owner of the surplus is defined by the plan rules.
However, it is generally used to improve retirement benefits." In terms of the proposed FSC regulations, LOJ thinks it can be favourable. "Right now the pension fund industry is very open. As long as the up coming regulations improve transparency and ensures that members and employers are treated fairly then it will be a good thing." Christian again supports this view. "Regulation of the industry will promote transparency which the industry needs. Its implementation is timely and will be to the overall benefit of all stakeholders. We will embrace it because it means the betterment of pension plans." But Christian cautions that the continued input of the industry in the drafting of the regulations is vital. "We do have some issues with the FSC. We have not seen the exact regulations, but one thing that we are concerned about is the level of fees." At LOJ, there is a similar sentiment. Said our source, "the trick (for the FSC) is to not be seen as a burden to the employer by regulators. If the cost to employers to be regulated is onerous, then I fear that employers will simply shut down the plan."
