Tue | Dec 12, 2017

Pensions under pressure

Published:Friday | September 29, 2017 | 12:00 AMAvia Collinder
President & CEO of Victoria Mutual Group Courtney Campbell greets researcher and assistant lecturer at the University of the West Indies, Julian McKoy Davis, at the VM Pensions Management/PSOJ 10th annual pensions seminar held at Spanish Court Hotel in New Kingston on Thursday September 28, 2017. Senior Director for Investments at the National Insurance Fund, Audrey Deer Williams, is at left.

Courtney Campbell, group president and CEO, Victoria Mutual Group indicates that with increasing life expectancy, the reliance of older Jamaicans on those in the workforce - referred to as the dependency rate - is projected to double by 2050.

Speaking at the 10th annual pensions seminar, a collaboration of Victoria Mutual Pensions Management and the Private Sector Organisation of Jamaica, Campbell said the development heightens the challenges regarding adequate preparation for retirement for the Jamaican population.

"It goes without saying, that added years means pensions systems will now begin to pay way above what is originally planned and for longer periods even if there is an increase in the standard age for retirement," he said at the event on Thursday.

In Jamaica, only 10 per cent of the working population contributes to private pension schemes that are valued in sum at more than $470 billion.

Audrey Deer Williams, senior director of investments at the National Insurance Fund, the NIF, who also spoke at the seminar, said only 46 per cent of the Jamaican workforce was contributing to the state-operated National Insurance Scheme, which pays out benefits after age 65.

But, even among the 46 per cent, there are many who only qualify for half-pensions because they do not meet the minimum 39 weeks of contributions required to receive full benefits, she said. There are currently 110,000 Jamaicans receiving pensions from the scheme. NIF manages and invests the contributions to the public pension scheme.

Campbell pointed to a white paper by the World Economic Forum titled We'll Live to 100 How Can We Afford It? which states that the life expectancy of babies born in 2017 is 103 years.

"This is great news, and compares with life expectancy of 100 for those born in 1997 and 91 years for those who were born in 1967. Individuals living longer also suggests a seismic shift in the number of years that the average individual will live after retirement - a move from on average 15 years to almost 40 years."

But, he also noted, that "this change has a profound impact on the traditional make-up of our societies and the social protection systems that are designed to support us in our old age."

The global dependency ratio stands at 8:1, but is expected to move to 4:1 by 2050, which, he said, carries implications for cost and for funding.

Campbell suggested that one way to address this issue is to increase the retirement age, but noted that worldwide, "there has not been any significant movement in this area."

In Jamaica, he added, the challenge is compounded by a low savings rate which was estimated at 19 per cent of GDP in 2015, according to World Bank data. Additionally, only 32.2 per cent of Jamaicans 15 years and older are saving for old age.

Campbell stated that low levels of financial literacy were also impacting pensions system, "as it takes a good understanding of financial concepts to assist persons to make key decisions relating to pensions and their retirement savings."

Deer Williams, who oversees the largest pool of pension funds in Jamaica, last valued at $95 billion, said that currently, pension schemes in the public sector are largely non-contributory, with an attendant cost to the Government.

And even though reforms are being pursued, said the pension fund manager who is also chief technical director at the Ministry of Labour & Social Security, the wider population should be more concerned about their pensions.

The 46 per cent rate of contribution for the NIS was inordinately low, she said, noting that the main causes were lack of compliance on both the part of employers and employees, as well as the "refusal of persons in the informal sector to come on board."

"As a ministry, we will, in the coming financial year, take steps to heighten awareness; and I would like to use this medium to urge employers to comply with the law as it relates to NIS contributions," Deer Williams said.

avia.collinder@gleanerjm.com