Pension savings can strengthen economy
Professionals in the local pension industry maintain that Jamaica could accelerate its development initiatives and avert a poverty crisis, particularly among its ageing population, by strengthening its pension system.
Currently, only approximately 40 per cent of Jamaicans have pension benefits from the National Insurance Scheme (NIS) to support them during their retirement years, which, at approximately $5,600 fortnightly, will mean destitution for many persons at ages 60 and 65. And, only about 8.9 per cent of the employed labour force, which is estimated at just over one million people, is a part of a bona fide pension scheme.
"In addition to being a social safety net, a prudently managed pension system can spur economic growth," underscores Sharon Smith, consultant with responsibility for the JN Individual Retirement Scheme at the Jamaica National Building Society (JNBS).
Noting the country's poor savings rate, which is among the lowest according to JNBS General Manager Earl Jarrett, Smith says increasing savings through prudent pension management could provide critical support for the elderly, and the economy.
"In Chile, for example," she noted, "The World Bank indicates that they were able to increase gross domestic product by nearly five per cent between 1981 and 2001 by reforming their pension system and increasing pension savings."
Pointing to the current Reform of the Pension Act (2004), she said reform cannot be achieved without having the supporting legal framework; however, there is a missing link in the ongoing discussions about reformation of pension laws.
Citing the Chilean approach in the 1980s, Miss Smith says that Jamaica should explore instituting a compulsory pension scheme to increase the savings under pension. And, beyond NIS payments, working Jamaicans, whether employed by a company or self employed, should make individual contributions to an approved pension fund.
"They should do both," she posits, arguing that persons already making contributions to a superannuation fund should also contribute to an approved private pension scheme. "Although the NIS is already mandatory, there is no penalty if you fail to make a contribution; and, in addition, there is a cap on what you can receive from the NIS at retirement," she points out.