Oran Hall | Employers not duty-bound to establish pension plan
Question: I am interested in setting up a business in Jamaica and I currently am doing a bit of research on running an ethical business. Could you please let me know whether paying employees pensions is compulsory? Would leaving the employees to set up their own pension plan be breaking any law? Are there any legal financial employee benefits that I should put into place? Thank you for taking the time to read through my questions. I appreciate your time and help.
Financial Adviser: There is nothing in Jamaican law that requires persons to have a pension, so an employer does not have to set up a pension arrangement for employees. When employers set up a pension arrangement, it tends to be a superannuation fund or group pension fund, but the approved retirement scheme is an alternative if no superannuation fund is put in place.
According to the Financial Services Commission (FSC), as at September 30, 2016, 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, which have private pension arrangements.
Employed persons whose employers do not offer pension benefits can make their own preparations for a pension by contributing to an approved retirement scheme. In some cases, employers contribute to the retirement schemes on behalf of their employees. In others, they do not, so only the employees contribute.
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 the scheme to save for their retirement income. If employers contribute, their contribution is capped at the difference between 20 per cent of the employee’s income and the contribution that the employee makes to the scheme.
Retirement schemes are defined contribution plans in which the pension benefits are determined by the value of the savings and income earned thereon. Among the managers of these pension arrangements are securities dealers, life insurance companies, and credit unions.
Saving for retirement through retirement schemes and superannuation funds has the additional benefit of the investment income on the contributions not being taxed.
Beyond pension arrangements, there are some benefits that you should put in place for your employees. They include the minimum level of pay, leave with pay, and payment in the event of redundancy.
Jamaican employers are required to pay their employees at a level that is not below the national minimum wage. This rate is reviewed and adjusted from time to time.
All workers are entitled to vacation leave and sick leave with pay as prescribed by the Holiday With Pay Order. All qualified workers are granted maternity leave entitlements as provided for in the Maternity Leave Act.
Workers who are made redundant are to be adequately compensated as provided for by the Employment (Termination and Redundancy Payments) Act and Regulations. Details of the foregoing are available at www.mlss.gov.jm/pub/index.php?artid=48.
In addition, there are certain deductions from the salary of employees with corresponding contributions by employers which form the basis for certain benefits that enhance the welfare of employees.
The first of these is contributions to the National Insurance Scheme (NIS). The NIS is a compulsory contributory-funded social-security scheme that offers financial protection to workers and their families against loss of income arising from injury on the job, incapacity, retirement, and death of the insured. Employees contribute to age 65 at the rate of 2.50 per cent of gross salary of up to $1.5 million if they cease working at age 65. Employers are required to make matching contributions.
The other is contributions to the National Housing Trust (NHT), which is an organisation set up by the Government of Jamaica to lend money at low interest rates to contributors who wish to build, buy, or repair/improve their houses or who wish to buy or build on lots.
Employers contribute five per cent of their total wage bill to the NHT, that is, total gross pay of all employees who are liable to contribute. This includes the employee’s contribution of two per cent of gross pay.
These arrangements contribute in varying degrees to the personal financial well-being of workers during and beyond their working life, so they are important. For that reason, they should not be ignored, more so because they are required by law.
- Oran A. Hall, principal author of ‘The Handbook of Personal Financial Planning,’ offers personal financial planning advice and counsel. Email firstname.lastname@example.org