Public pension reform diluted - Pre-funding of segregated fund rejected
Actuary Cathy Lyn says the White Paper public pension reform has watered down recommendations of the Joint Select Committee (JSC), but that what is proposed might be a practical response to current economic conditions.
Pension liabilities currently amount to $23 billion annually for 33,000 pensioners paid from the Consolidated Fund on a non-contributing basis.
The expense is borne by the employer, the Jamaican Government, but the new policy now being formulated aims to create a new system under which public-sector workers contribute to their pensions.
A main proposal of the JSC report was for a defined-benefit system with a combined contribution rate of 10 per cent - five per cent from employees and five per cent from the employer - with monies flowing to a segregated fund.
lower employer contribution
The White Paper, which was tabled in Parliament in December maintains the five per cent contribution for employees but has reduced the employer contribution to three per cent, with a $17-billion contribution from the Consolidated Fund over 40 years.
Pre-funding of the segregated fund was also excluded.
"Delaying funding in advance means that the past-service liability is probably growing - maybe more slowly as there have been substantial retirements in the last year or so and maybe very few new hires, if any - so will be a bigger bill to amortise later," said Cathy Lyn, the immediate past president of the Caribbean Actuarial Association.
"As a Government, their reason is not to put stress on the financial system at this time, and once the ability to meet benefit payments continues it does not really make a difference to the pensioners. The fund becomes important when the Government goes bankrupt," Lyn said.
Implementation of the reform is at least a year away. The White Paper suggests April 2016, a date that Lyn said would allow time to amend the proposed pension rules in order to administer the revised benefits.
The actuary said the system being developed is more equitable since it requires public-sector employees to share the cost of their pensions in return for benefits, even while contending that the White Paper appeared less urgent about the issues.
"The JSC recommendations were aggressive because they understood the fiscal deficit was so high, the incoming cash flow so inadequate that drastic steps were needed to cut total expenditure for pensions, while at the same time improving the system for the people by funding the past-service liability and setting up a segregated fund," said Lyn.
"However, the White Paper obviously does not feel the financial situation is so desperate and has delayed implementation to April 1, 2016," she said.