Sun | Jun 20, 2021

EDITORIAL - Pension reform still possible

Published:Friday | June 15, 2012 | 12:00 AM

Policymakers and public commentators must avoid agitating the society into a psychosis of defeat, leading to paralysis on pension reform.

That is not an affordable option. It is, nonetheless, a clear danger from the opinion by the Attorney General's Chambers suggesting that proposed changes to the system of pension for civil servants would breach the Constitution and the employment contracts of tens of thousands of government employees.

Yet, pension reform is a big part of fixing Jamaica's fiscal problem and its unsustainable debt, which the International Monetary Fund (IMF) has put at 140 per cent of gross domestic product. But the Government's pension obligations operate almost in stealth.

For instance, what is not often recognised in discussion about the Government's public-sector wage bill - estimated at about J$148 billion or 10 and a half per cent of gross domestic product (GDP) this fiscal year - is that it does not include pension. You have to add another $24.1 billion.

But, unlike private-sector employees, most government workers do not contribute to their pensions, which are paid directly out of the Consolidated Fund, allocations for which are placed in the Budget each fiscal year.

In that regard, the pension obligation is a real unfunded, contingent liability to the Government that is not immediately apparent in the national debt, but which grows larger as pensioners live longer. Some analyses suggest that should Jamaica do nothing about the implicit pension debt, now at around 36 per cent of GDP, it would be nearing 60 per cent by 2075.

A government Green Paper on reform suggested adoption of a hybrid system. The retirement age would, over a decade, move from 60 to 65, but from employees 50 and older would be exempt. Under this proposal, all employees would contribute five per cent of their wages to their pensions, matched by a similar amount from their employer.

However, the scheme would retain many of the current characteristics. The benefits to employees would likely continue to be defined, paid from the Consolidated Fund, rather than a segregated fund, dependent on its returns. This would perhaps deal with the part of the constitutional issue raised by the Attorney General's Chambers, but would clearly leave the contractual obligation to be resolved.

Doing nothing is not an option

None of these matters is, in our view, insurmountable. First, this newspaper does not expect pension reform to be an imposition. Rather, it will be the subject of serious and thoughtful public debate and negotiations between the Goverment and, as they have shown recently in their acceptance of a wage freeze for the 2010-2012 period, equally responsible unions representing public-sector workers.

Both sides appreciate that in the context of Jamaica's debt dilemma, failure to confront the public-sector wage bill will, in the absence of robust growth, mean accelerated job losses. This danger is especially stark in the face of preconditions set by the International Monetary Fund (IMF) if the island is not to remain locked out of multilateral financial support and private debt markets.

Contracts can be renegotiated. Furthermore, given the range of pension-reform options, it is not beyond the capacity of Jamaican officials to fashion something suitable to this country's situation.

As Finance Minister Peter Phillips advised, we look forward to the recommendations from the parliamentary committee discussing the issue.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.