Steps to the way forward
THE EDITOR, Sir:
PLEASE ALLOW me to respond to the article 'Allow competition for public sector' published in the November 21, 2012 Gleaner online. The 'legacy' liability of pension has caused numerous public and private entities to go bankrupt or, in order to avoid bankruptcy, change the policy and structure completely.
Pension funds are trust funds and should be treated as such. However, whenever it comes to governmental institutions, pension funds are treated as part of the general funds to be used by these institutions, when collected. Next, sometimes these funds are placed with quasi-government institutions to be managed, and because the funds are considered to be government funds proper risk management practices are not adhered to. This is one of the reasons why I am in agreement with the outsourcing of pension funds to professional managers, as stated in the article.
Another issue raised by the article is that new public-sector employees should pay five per cent into the fund, which indicates to me that there will be a two-tier system. So my question is: what changes does he propose for the current employees? There should be changes to the entire system, and although the five per cent payment would be a start it would still leave the taxpayers with a future legacy cost.
To alleviate this cost these are my proposals:
Increase the pension age because people are living longer
All new employees pay five per cent into the system, matched by another five per cent by the employer. This fund should be paid into a dedicated trust fund and managed by professional pension fund managers.
For current employees, using a specific date, calculate the accounting balance amount for each employee and freeze it on that specific date. And, either pay it in one lump sum into the trust or pay it in increments [with an agreed factored interest] until payment is complete. Depending on the contractual agreement the employees have, as it relates to pension, if legally it cannot be changed then all the Government has to do is to determine what percentage of each employee salary is accounted for as pension amount and pay that amount into the fund.
For those employees who have retired or will retire within the next five years the old system should continue to apply.
Employees should own their accounts in the fund and given a statement of account at least once per year. The Government should work with the fund managers to develop guidelines, and regulations regarding assets that can be invested in.
John D. Wilson, Jr