By Denise Williams, Staff ReporterTHE OVER 800 pension funds in Jamaica will soon be under greater scrutiny upon the passage of the new Pension Funds Act. However, this greater scrutiny is being blamed for the pending closure of several smaller private In previously published reports, Government Senator Professor Trevor Munroe said, "It is unacceptable and dangerous for pension funds to continue to operate without appropriate
regulation."
It is estimated that public and private pension funds manage nearly $68 billion. The Statistical Institute of Jamaica reveals that there are 942,300 employed Jamaicans. The Government-run National Insurance Fund (NIS) collects from about 450,000 persons. NIS alone controls $27.6 billion in assets.
However, at this current time the 829 private funds have no compunction to reveal their asset base.
Legislation is now on stream to change that and this has made some persons uncomfortable.
UNCONSTITUTIONAL
Mr. John Hall, manager of Barita Portfolio Management tells The Financial Gleaner that, "There seems to be the perception that Government is going to get hold of the surplus money the private pension funds have generated over the years." However attorney-at-law Angela Fowler strongly said that it couldn't happen. "No. No. No. That cannot happen, that would be unconstitutional. People think it is another Air Jamaica case where the Government and the pension fund became entangled." Ms. Fowler believes the real problem is that, "The reality is that people may not want to account for surplus." And the result is to lock shop. Said Mr. Hall, "I know of a couple of them (private pension fund) are winding up because of the new Bill. What they are going to do is refund all the money to employees and forget the whole thing." However, Mr. Hall would not reveal the names of companies who are closing down their pension schemes.
However, according to the experts the real issue is not with the Government but with contributors and pension funds themselves.
Mr. Hall said, "Part of the problem has been people tend not to pay attention to their pension contributions. Old age is somewhere down the line, 20 to 30 years from now and so the belief is that the money will come from somewhere."
Traditionally, when people change jobs the accumulated pension amount is returned to the contributor. Mr. Hall sees this as the major flaw. "People get excited when they see a lump sum of money returned to them. They take the money and buy a car or just spend it out. But 20 years down the line when it is really needed the money is not there. People use it to satisfy immediate needs and don't even consider old age."
Mr. Hall also takes a swipe at the persons who should be guarding the fort. The trustees have not been as interested in the daily pension fund management, in my observation. You talk to them and ask them what's the mix in the portfolio. It's just lots of shifting of paper."
In order to correct some of the inherent problems with self-management by private companies, the Act now require licensed professionals to become involved.
MAJOR CHANGE
Explains Ms. Fowler, "A major change is that pension funds must have an investment manager and an administrator. And they must be companies who are licensed under the Pension Act. The manager of the licensed company must also be licensed under the Financial Services Commission Act. Companies can no longer self-administer. So the question companies have to ask is 'Do I want to form a company to run the pension fund or do I want to pay a company to do it for me?' And it will cost the companies at least three per cent plus a percentage for management fees to manage the fund."
Operating a pension fund without an administer or investment manager can earn a fine of up to $5 million.
Added Mr. Hall, "Government should discourage companies from winding up their pension funds. Tom Brown who works 30 years will have nothing to get because he already got his money years ago."
And this leads to one of the flaws in the new legislation according to Mr. Hall. In his opinion the missing component of the new legislation is the fact that benefits cannot be transferred from job to job. "Pension fund portability is the key aspect of any reform, and that was not passed. Truly, I don't know why."
But the Government can do so much and no more. Mr. Hall said, "It's incumbent on the contributors to take more interest in their pensions. Now there might be some interest because of the Pension Fund legislation.
And there is time for companies to organise themselves. Said Ms. Fowler, "The law now has been passed but not in effect. Government will not announce the implementation date until the regulations have been clarified."
The Financial Gleaner understands that a public education campaign will be undertaken before the law comes into effect.
