Dr Marshall Hall | Towards universal pension coverage (Pt 2)
Last week, I underscored that Jamaica's very poor pension coverage requires immediate attention.
I noted then that any scheme that attempts to provide a minimum acceptable benefit for all will require that the benefit cannot be wage-related, given that the minimum wage is $5,200 per week, and many above the minimum wage level earn less than $15,000 per week.
Today, I present some suggestions towards universal pension coverage.
1. All Jamaicans above, say, 16 years old should be required to have an NIS number, and this could begin with school leavers. The introduction of this requirement should not await the introduction of the NIDS.
2. Require that all payments for income of any kind pay into the NIS the legally required contributions.
We recognise that this will be difficult to administer, but to begin, the employers of persons who are deemed to be on contract and receive income for work should be required to withhold and pay over the requisite NIS payments. There should be no exceptions, and those who believe that the deductions were in error should be able to make a claim for a refund. Initially, we propose a contribution level in the neighbourhood of 2.5 per cent for employee and employer. We emphasise again that all income-type payments should require mandatory NIS payments. As we move away from cash transactions, the ability to collect the mandatory pension payment should increase.
3. To keep the percentage contribution low, the cap on NIS contributions on income above a certain level should be removed. In other words, all wages or any income for work should attract the agreed NIS payment by both employee and employer. Removing the cap and establishing the same flat rate for all will result in a significant transfer pension payment to lower-income earners.
4. Define the flat rate benefit such that the fund is deemed solvent by agreed actuarial assessment. The flat rate should not exceed the actuarially agreed solvency level.
5. The fund should be only for contributors and their defined dependents, and no other benefits other than the flat rate should have a claim on the fund. The current wage-related component of the existing NIS should cease. This should terminate as of a certain date, and to help with the solvency requirement the Government should be asked to be responsible for paying the already earned wage-related benefits.
Thus, the existing fund would be dedicated to the payment of the flat rate. It should be noted that the Government currently contributes to the funding of the NIS, and this money should be used to meet all non-flat rate payments now being made from the existing NIS Fund. It might be possible to port the wage-related portion of the existing NIS Fund to other pension schemes or develop an NIS managed defined contribution scheme for employees who do not belong to any other pension scheme.
6. All payments under this scheme should be paid monthly into the fund, and its managers should be required to earn market rates commensurate with its risk profile.
7. To ensure broad acceptance, the NIS office should develop alternative methods to receive payment and explore options such as allowing firms that have surpluses in their defined benefit schemes to use the surpluses, subject to actuarial approval, to pay their employer portion.
8. The requirement for a deduction by the employer of the employee's contribution as well as the requirement for the employer to match the employee's contribution should be widely advertised, with penalties for non-compliance. An employee should be able to confirm that the employer has made the required contribution to the fund. The benefits of the fund should be advertised so that employees will insist on participating.
We are satisfied, subject to actuarial assessment, that an NIS as conceived above would allow for a meaningful flat-rate payment.
Increasing pension coverage in Jamaica requires urgent an immediate attention.
These thoughts are designed to point the direction for the dialogue to begin to establish basic pension coverage for all.
Editor's note: Last week, minister without portfolio in the Ministry of Finance Fayval Williams announced that the Government is taking steps to amend the Pensions Act to confront the pension crisis facing Jamaica.
- Dr Marshall Hall has been an academic serving on the faculty of universities in the USA, Uganda, and Jamaica. He has also served as executive chairman of the Jamaica Public Service Company and CEO of Jamaica Producers Group. He was inducted into the PSOJ Hall of fame in 2005. Feedback: firstname.lastname@example.org