Rezworth Burchenson, Guest Writer
Burchenson
The challenges of regulatory compliance with the pension laws dominated the sector in 2007.
The Financial Services Com-mission (FSC) and the Taxpayer Audit and Assessment Department are keeping stakeholders engaged to ensure adherence to the requirements of the new legislation.
Reform of the sector, which is policed under the the Pensions (Superannuation Funds and Retirement Schemes) Act, 2004, and its regulations, is ongoing.
As reported in the 'Jamaica Public Bodies', a publication of the Ministry of Finance released in April, the FSC had expected to complete 60 per cent of the fit and proper review of trustees, and 50 per cent of registration of pension plans by the end of the fiscal year, March 2008.
The registration of retirement schemes was to follow under a separate programme.
The following reviews monthly developments in the pensions industry over 2007:
March
Pension-fund investment managers complained that withholding tax refunds appeared to have been suspended. It was speculated that this action was initiated by the Ministry of Finance in an effort to curtail expenditure towards the end of the fiscal year.
April
Then Minister of Finance and Planning, Dr. Omar Davies, disclosed that the pensions sector was estimated at $132 billion, 30 per cent more than initially projected, with over 520 pension plans in operation.
Brian Wynter, executive director of the FSC, advises that the registration of pension funds and their trustees will take place over a three-year period.
Wynter also advises that:
"While 520 pension funds applied for registration, only 45 (nine per cent) were properly completed.
"The FSC received applications for 1,628 trustees but only 749 (46 per cent) were properly completed. However, the FSC announces that it expects to complete the application process for trustees by September 2007."
May
Attorney Peter Goldson from the law firm Myers Fletcher and Gordon, at a Jamaica Chamber of Commerce seminar, outlines proposed changes to the Income Tax Act towards encouraging greater participation in pension funds and retirement schemes. These include:
"Tax-free relief of 20 per cent of emoluments, up from the $6,000 relief currently enjoyed.
"Pension increases will now be allowed, provided the pension plan can afford such increases and is in line with the movement of the Consumer Price Index.
"An increase in the maximum pension paid from 66.66 per cent to 75 per cent of final salary provided a minimum of 37.5 years of service.
"Allowing persons to contribute the difference between what is paid by the employer and the 10 per cent limit imposed aimed at increasing a person's pension benefit.
"Increasing the maximum lump sum paid from $150,000 to one quarter of the accrued pension up to a maximum of 12 and one-half times, a quarter of the pension before commutation.
June
The FSC reported on its website - www.fscjamaica.org - that it has approved 19 investment managers and 21 administrators pursuant to the new Pensions Act. Industry sources expect a more vibrant yet competitive market in the upcoming years from the new entrants.
Mayberry Investments Limited announced at its annual general meeting that it would enter the pension-fund investment market by year end.
Jamaica Money Market Brokers launched its pension-fund investment-management unit in an effort to grow fee income and compete with the established players.
July
Pension-fund investment managers called on the authorities to effect changes to Section 22 (b) of the Bank of Jamaica Act, allowing pension funds to invest in a wider array of foreign assets towards diversification of pension portfolios.
One consideration is for a phased removal of this restriction over a three-year period towards the 20 per cent limit imposed by the Pensions (Investment) Regulations.
August
Leading up to the general election, the Jamaica Labour Party proposed establishing a pension's commission as an independent regulatory body to oversee the administration of pension funds and retirement schemes, coupled with making a provision for portability to preserve the accumulated pension benefits of members.
September
It was reported that Brian Wynter, the executive director of the Financial Services Commission since 2001 - and who was instrumental in the new Pensions Act and Regulations, would be departing office to take up an offer with the Caribbean Regional Technical Assistance Centre.
October
Justice J.A. Harrison ruled that former employees of Gillette Caribbean Limited were entitled to share in the pension-fund surplus of over $42 million.
Said Harrison in his ruling: "It seems to me, therefore, that when the employer's contribution is retained in the fund after the employee takes a cash return of his own contribution, that employee nevertheless remains a member of the fund by virtue of the retention of the employer's contribution. That member would, therefore, be entitled as of right, to certain future pension benefits and a share in any surplus which arises at the discontinuation of the fund."
November
Retroactive to July 1, 2007, some 20,122 Government pensioners are to receive increased payments amounting to approximately $300 million.
The categories include pensioners in retirement for not less than two-and-a-half years, those at least 55 years old, and those retired on the grounds of ill health, regardless of age.
The increase ranges from $499 per month for pensioners receiving $75,000 and over per month, to $1,250 per month for pensioners receiving under $20,000 per month.
December
Permanent Secretary in the Ministry of Information announced that Cabinet has issued drafting instructions to amend the Pensions Act and bring the phase two reforms into being, covering the mandatory vesting period in pension plans; the portability of pension rights; the indexation of funds; and the distribution of surplus.
While there was some progress made in 2007, stakeholders remain disappointed that the amendments highlighted in the Phase Two reform meetings were not effected especially as it relates to the offering of Individual Retirement Accounts (IRAs).
This is especially important as many pension plans were closed before the passage of the Pensions Act, resulting in a lack of access to appropriate vehicles for some persons to save for their retirement.
Rezworth Burchenson is Managing Director, Prime Asset Management Limited, a company engaged in pension fund investment management and administration. Email: rburchenson@primepensions.com.
