A World Bank economist has concluded that financial education has done little to drive up retirement savings in Jamaica.
But while senior social protection economist, Dr Gonzalo Reyes, is advocating that local companies need to do more to improve financial literacy in order to boost worker participation in long term pension savings, he is signalling that better outcomes may lie in legislation.
Other jurisdictions, he said, have garnered better results through automatic enrolment schemes with an option for employees to opt out.
In the United State, pension coverage has increased by 35 per cent as a result of the Pension Protection Act of 2006, said Reyes. The United Kingdom followed suit in 2012 for individuals not covered by private pensions.
In these two cases, about 10 per cent of those enrolled opted out, Reyes said.
Challenges facing Jamaica in its pensions planning, the economist noted, was a high level of informality in employment, a high public debt and low growth averaging 0.1 per cent for the last 20 years.
At the same time, he said the country was also facing a projected increase in the population aged 65 and over and a middle class bulge, with more Jamaicans expecting better services as they age.
private pension savings
Less than eight per cent of the Jamaican labour force is enrolled in a pension scheme. Just 97,000 people have private pension savings out of a labour force of 1.27 million.
Other options for improving coverage, Reyes said, is a national pension scheme such as the National Employment Savings Trust introduced by the UK government.
In his own country of Chile, Reyes said education efforts resulted in only a one to two per cent improvement in pension savings activity.
"There is a very mixed impact," he said at a pensions seminar in Kingston on September 26. "It is not clear that it has a big impact on behaviour."
One strategy to be tried, he said, was to offer projections of what pension payments at retirement might amount to for individuals based on contributions.
"Personalised pension projections increased voluntary savings with more workers more likely to make voluntary contributions on top of the mandatory requirement," the economist said.
Rezworth Burchenson, managing director of pension fund company Prime Asset Management Limited, said that retirement education was of little effect in Jamaica.
"What we are finding is that participation and coverage is improving for retirement schemes, but it is being taken up by persons who are more self-aware. The FSC has some awareness-building programmes, but the most successful measure is where the employer takes a keen interest in the employee's welfare with regards to long-term retirement planning," said Burchenson.
This is done by creating a company-sponsored pension scheme and also the employers themselves making a contribution. When the employer makes a valid contribution on a monthly basis, the take-up rate is much higher," he said.
Both were speakers at the Prime Asset/PSOJ 6th annual pensions seminar.