Thu | Nov 15, 2018

NIF, NIS to merge - Government to spin off new agency, weighing privatisation of pension funds

Published:Wednesday | August 15, 2018 | 12:00 AMAvia Collinder/Business Reporter
The Ministry of Labour & Social Security, at National Heroes Circle in Kingston, home of the National Insurance Scheme.

With Cabinet approval in hand, the Ministry of Labour and Social Security disclosed on Monday that it is pursuing an overhaul of public pension fund manager National Insurance Fund (NIF) that will result in its merger with the National Insurance Scheme (NIS).

Both entities now operate as departments of the ministry, but the newly created entity agency will be spun off as a statutory agency that will oversee about $106 billion in assets, which was the last estimate provided for the value of the NIF portfolio.

It will require adjustments to the NIS law, the drafting instructions for which are currently being prepared for submission to the Chief Parliamentary Council.

The revamping of the agencies comes behind reports of management deficiencies regarding NIF's equity portfolio, and of fraud at the NIS, which itself has come under scrutiny for some disbursements.

The Labour Ministry told the Financial Gleaner that the restructuring and tie-up of the NIS and NIF is being pursued as a short or medium-term project, which has already started with the engagement of a consultant.

"Under the rationalisation programme, NIF will change status to a public body as well as the possibility of being managed by an investment firm (to be explored)," the ministry said via email.

NIF's redesign as a "body corporate", it added later, is meant to enhance the NIF's performance by giving its management more autonomy over the pension fund's administration.

"This will strengthen its effectiveness and accountability in managing the investments. It will also create greater value for the pensioners who benefit from the fund," the ministry said.

It gave no more details on what appears to be a plan to eventually privatise the administration of public pension assets, but this issue has been engaging members of the financial sector since at least July.

The talk within fund management circles, which has not been confirmed, is that the prospective pension fund managers under serious consideration have been whittled down to two seen as capable of handling a $100-billion plus portfolio, one of which includes the fund management arm of NCB Financial Group. That information is being relayed by sources who are pitching for the pie to be shared with others, and are arguing that the Ministry of Labour should consider contracting out various portions of the NIF portfolio to different players.

NIF is the fund manager for NIS contributions. Its portfolio comprises resort assets, commercial real estate held in Jamaica and overseas, equities, and corporate and government securities.

The labour ministry says it is being assisted with the restructuring programme by the Transformation Implementation Unit of the Ministry of Finance, while noting that work towards the rationalisation of the two bodies began back in 2017.

It started with the hiring of a consultant - whom the ministry did not identify - and review of the existing corporate governance guidelines for central government "as the minimum standard for creating an overarching corporate governance standard" for the two bodies with the goal of combining their operations.

The consultant is expected to build on the existing corporate governance framework in the design of the new agency "to achieve international best practice standards that are fitting for an organisation that is managing over $106 billion in assets," the Ministry of Labour said.

As part of the process, a comprehensive review of the NIF Investment Policy will be undertaken by the consultant and a risk management policy developed.

The review will also determine the gaps in capacity and competence, and the cost of merging the NIS and NIF. But the date for the merger of the operations is to be determined by Cabinet, based on recommendations coming out of the review.

avia.collinder@gleanerjm.com