Private pensions now a $300b market - 337 dormant plans to be wound up
Published:Friday | November 15, 2013 | 12:00 AM
Avia Collinder, Business Reporter
Pension market regulator, the Financial Services Commission (FSC), said Wednesday that there are some 337 dormant superannuation funds waiting to be wound up, with total assets valued at $9.2 billion.
Those funds, however, are still counted in the industry total for pension assets, which hit a new milestone in June when it topped $300 billion, new data shows.
Options being looked at by trustees of the inactive funds include lump sum payments to members, the purchasing of annuities and transfer of funds to another approved superannuation fund or retirement scheme, according to FSC senior pensions analyst Courtney Brown.
A superannuation fund becomes dormant or inactive when the sponsor of the fund discontinues contributions, the FSC said.
The main reasons given for exiting schemes, the regulator said, include members' request, reduction of membership, switchover to a defined-contribution plan, economic hardship, and perceived costs and legislative burdens.
The winding-up process could be finalised within 90 days, but it often takes longer because of the need for an actuarial and/or legal review, said Brown.
"It's a technical process," he said.
"In terms of the information needed, the FSC has to ensure that everyone gets what they deserve."
The FSC may need to resolve issues relating to the division of surpluses, if there is one, between employer and plan members — a complex process, Brown adds, that is actuarially determined.
The private pension market now manages assets of $303.48 billion, with Sagicor Life Jamaica in control of 47.5 per cent; Scotia Asset Management, 41.2 per cent; and JMMB Fund Managers, a distant third with 5.9 per cent.
Sagicor's portfolio alone is more than double the size of the public pension sector, whose assets amount to some $63 billion managed by the National Insurance Fund.
$7B growth in 3 months
The private pensions market grew by two per cent or $7 billion in three months, from the March quarter to the June quarter, even as the active plans fell by six to 445, inclusive of 14 retirement schemes. Total plans were steady at 803 and membership virtually unchanged at 97,163.
The FSC said that the commerce and finance industry dominated both in pension membership and assets - accounting for 43 per cent of active members and 40 per cent of the pension industry assets.
The services sector followed with 21 per cent membership and 16 per cent of assets.
The regulator also indicates that, notwithstanding the greater number and larger membership pool in defined-contribution plans - 336 of the 445 active plans - the defined-benefit schemes continued to dominate the market in terms of assets.
Contribution schemes had 68,866 members but just under $92 billion of assets, while the defined-benefit segment had 27,596 members but $202 billion of assets up to June.
The FSC says the National Debt Exchange in February - which reduced returns from GOJ bonds - has not changed the growth trajectory in the pensions sector; and that the solvency levels of pension plans "remained adequate".
Direct holdings of government securities are still on the rise, amounting to 43 per cent of investments portfolios up to June.
"This represents a two per cent increase in the total quantity held," said the FSC.
Investment arrangements represent 28 per cent of total investments; and these investment arrangements, which include pooled funds and deposit administration contracts, are significantly invested in government securities, according to the June pensions report.
During the quarter, investments in leases decreased by 23 per cent to holdings valued at $2.06 billion; this after more than doubling during the previous quarter.
Bonds and debenture holdings also dropped off by 14 per cent to $4.1 billion, reversing the upward trend which began last calendar year.
Equity holdings climbed 12 per cent to $30.26 billion, while foreign securities rose to $19 billion, amounting to 6.36 per cent of total invested assets.
Brown says government securities have not lost their lustre.
"There is still a significant amount of appetite for government securities. It is seen as a risk-free investment choice," he said.
Retirement schemes grew at a slightly faster pace of 2.74 per cent in the quarter, but still accounts for less than three per cent of the total pensions market at less than $9 billion of assets.
"As you can appreciate, retirement schemes are new to the Jamaican market; as such, the addition of one person to a retirement scheme will have a greater growth effect than the addition of one person to a superannuation fund," said Brown.
"Retirement schemes are being aggressively marketed to self-employed persons, and other employed persons who are not a part of any approved pension arrangement, and accounts for the increased membership and asset growth."
He also claims the market is responding positively to the FSC's media drive to increase awareness of pension arrangements and the need to save for retirement.
Members of approved retirement schemes can contribute a maximum of 20 per cent of annual income.