Golding questions delayed gov't contribution under proposed pension reform system
When pension reform legislation gets implemented, the Government will lose its dependency on contributions from some workers because those monies will have to flow to a dedicated fund and Mark Golding, the outgoing leader of opposition business in the Senate, has questioned how the State will manage.
Golding raised the issue last Friday after acting Senate leader Ruel Reid opened the debate on the Constitution (Amendment) (Established Fund) (Payment of Pensions) Act, 2017 and the Pensions (Public Service) Act, 2017.
The two pieces of legislation are aimed at reforming the Government's pension system by, among other things, mandating contributions from all public-sector workers in addition to that from Government.
No longer affordable
Reid said the State can no longer sustain the payments of pension for most workers and pointed to increases in recent years to highlight the point. In 2010, pension expenditure was approximately $17 billion. For 2017, the expenditure is expected to be more than $30 billion.
"Pension reform is aimed at making the system more affordable and sustainable for the Government while providing adequate pension benefits. While the reform, as outlined in the bill, will not completely eliminate the cost to the Government, it will reduce the burden," he said.
Golding agreed that the pension burden on the Government is "alarming", but expressed worries about how the Government will cope with the loss of the contributions from its cash flow.
"Currently, where employees make contributions to their pensions, those contributions are retained by the Government and form part of its own cash flow. Once this is set up, that will cease to apply. Contributions will have to be paid out of their salaries into the fund, which is not part of the cash resources of the Government. So, the Government loses the benefit of being able to use that cash."
He also suggested that the timeline for when government contributions will kick in could make the system "unfriendly" to employees.
Government contributions is tied to when Jamaica's debt-to-GDP ratio is 60 per cent, a target that is projected to be achieved by 2025-2026.
"We don't know when the debt-to-GDP ratio will reach 60 per cent. The employers' contributions are being deferred for a period of over some eight years, but we don't know - it could be sooner, it could be later - and, in the meantime, the employees will be expected to make their contributions."