Oran Hall | Pensions are not mandatory
QUESTION: I've just read a few articles you have written on personal financial health and pensions. I have a query: Is there nothing in Jamaican law that requires persons to have a pension? I see laws and regulations regarding the management and governance of pension plans but nothing that says everyone should have one. Unless that is supposed to be the NIS? Can you please point me to any articles or other information on what is required or not under local law for persons to pay a pension?
FINANCIAL ADVISER: There is nothing in Jamaican law that requires persons to have a pension, although the pensions sector is regulated and supervised by the Financial Services Commission (FSC). No doubt, you are referring to the Pensions (Superannuation Funds and Retirement Schemes) Act 2004 and its accompanying suite of regulations. Although the National Insurance Scheme (NIS) has a pension element, it is more than a pension plan.
According to the FSC, as at September 30, 2016, some 46,295 persons were members of 12 retirement schemes, and 61,356 were members of 398 Superannuation or group pension funds. Overall then, only 107,651 persons were members of approved pension arrangements. This does not include government employees and members of groups that have private pension arrangements.
Of note is that 43 per cent of members of approved pension arrangements were members of retirement schemes at that time although such arrangements accounted for only 2.93 per cent of approved pension arrangements. Persons eligible to be members of retirement schemes include self-employed persons and employed persons who are not members of superannuation funds.
Retirement schemes are individual arrangements that allow for members to contribute up to 20 per cent of their income which would not be taxed to save for their retirement income.
Saving for retirement through retirement schemes and superannuation funds has the additional benefit of the investment income on the contributions not being taxed. Among the managers of these pension arrangements are securities dealers, life insurance companies, and credit unions.
The NIS is quite a different matter. As its name suggests, it is an insurance arrangement, but it gives some pension benefits. It is for all employed and self-employed persons and others specified under the National Insurance Act who are 18 years old and over but below the retirement age.
For employed persons, both employer and employee make contributions and self-employed persons pay a sum equivalent to the contributions of the employer and employee. The government, however, does not make a contribution.
The benefits payable include the following: old age benefit, which includes old age pension and grant; invalidity benefit, which includes invalidity pension and grant; widow's or widower's benefit, which includes widower's pension and grant, widow's pension and grant; orphan's pension, including orphan's pension and grant; special child's benefit, which includes special child's pension and grant; funeral grant; employment injury disablement benefit; employment injury death benefit.
One associated benefit is the NI Gold Health Insurance Plan for which all pensioners on the NIS are eligible. Members are not required to make contributions or pay premiums. The types of benefits include in-hospital room and board, miscellaneous expenses, surgeon and assistant surgeon fees, anaesthetist fees, doctor's office and home visit fees, diagnostic services, prescription drugs, and optical and
There are participating providers islandwide from whom benefits may be accessed, and members are required to make a small co-payment when accessing the benefits.
It is important that all contributors to the NIS ensure that their contributions are up to date, particularly if retirement is just around the corner. It is important as well for contributors to satisfy themselves that the contributions deducted by employers are being remitted to the authorities.
Employed persons whose employers do not offer pension benefits can make their own preparations for a pension by contributing to an approved retirement scheme. These are defined contribution plans in which the pension benefits are determined by the value of the savings and income earned thereon.
In some cases, employers contribute to the retirement schemes on behalf of their employees; in others, they do not, so only the employees contribute.
Before deciding to become a member of a retirement scheme, it is important to check its track record, performance, and fees. Comparing several schemes is a prudent course to take before making a decision.
As much as possible, it is important to have other sources of savings to supplement a pension considering, among other things, the increasing life expectancy and the corrosive effect that inflation tends to have on income and on pensions that are fixed, that is, they are not increased periodically to compensate for inflation.
- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email firstname.lastname@example.org.