The two basic principles used to guide the proposed reforms have not been altered. The National Insurance Scheme (NIS) is to be enhanced so as to provide basic pension benefits to a wide cross-section of Jamaicans and their dependents; and effectively regulated Occupational Pension Schemes and Approved Retirement Schemes will be encouraged as favourable means through which private and public sector workers and their employers can save so as to supplement the basic NIS benefits.

Thus, the key features of the Reform of the Pension System still remain:

1. The enhancement of the basic Social Security System (NIS). This will involve developing improved funding arrangements and more efficient administrative procedures so as to facilitate the provision of more meaningful basic benefits on a national scale, with timely delivery of benefits to eligible contributors and their beneficiaries; and

2. The regulation of Occupational Pension Schemes and Approved Retirement Schemes. This will be done so as to ensure that all pension and superannuation schemes established in Jamaica will operate within an effective legal framework. The reform will involve both the regulation of pension and superannuation schemes and the establishment of funded schemes for Public Servants.

The major proposals which were modified to reflect the recommendations of the public are:

1. Vesting/Portability of Pension Rights;

2. Employee-Nominated Trustees;

3. Pensions Arrangements for Disabled Children by their Parents; and

4. The Pensions Commission.

Vesting/Portability of Pension Rights

The Green Paper suggested that provisions be enacted to ensure that pension rights are automatically vested on termination of employment after the completion of a minimum five years membership in a Pension/Superannuation Fund. It was proposed that on termination of service on completion of more than five years membership, the members' pension rights must be preserved in the plan, or be transferred to another occupational plan or Approved Retirement Scheme he/she is joining, in accordance with the person's wishes. After the date of enactment of the legislation a vested member, as defined in the proposed legislation, will not be able to get a cash refund of his contributions made since the enactment of the legislation.

The vesting of pension rights is central to the reform of the pension system in Jamaica, as it is necessary to ensure that persons make adequate preparations for their retirement. Currently, persons on changing jobs tend to opt for refunds of their own contributions, rather than opt for their accrued pensions to start at retirement age. These refunds are usually used for consumption purposes during the employees' working lifetime, leaving many people when retired without sufficient resources to sustain them through to the end of their lives.

Mandatory vesting also seeks to ensure that persons receive the benefit of both their contributions and their employer's contributions in the form of a pension, even in situations when they change or terminate employment before attaining pensionable age. In most schemes, the refund of members' contributions is a lesser value than the accrued pension.

However, the cessation of the right to a refund of the members' own contributions after the vesting period has been very controversial. The varying responses included:

• retention of the vesting provision but shortening the vesting period, for example from 5 years to 2 years membership;

• keep the system as currently applies for most schemes where the terminating member may still choose to take the refund of his own compulsory and voluntary contributions;

• allowing refunds for voluntary contributions only (as opposed to compulsory and voluntary members' contributions).

• linking the mandatory vesting period to a specified attained age, for example attained age 40 and minimum 5 years membership; and

• relaxing the constraints to allow the refunds in cases where termination is due to redundancy and the employee has not found a job within a specified time.

The Pensions Reform Committee, the actuaries and officials at the Ministry of Finance have agreed that the mandatory vesting of pension rights should be supported as a necessary policy decision. However, the concerns of segments of the public have been accommodated with regards to the voluntary contributions made by the members. The repayment of the members' voluntary contributions along with the interest/appreciation will be allowed on termination of employment in circumstances wherein they are not entitled to a pension.

It was also recommended that the proposed legislation will only apply to those contributions made after the enactment of the law. It is agreed, as stated in the Green Paper, that the mandatory vesting period begins to accrue from the Effective Date of the proposed legislation. Hence, after the Effective Date of the law, persons who had accumulated contributions in Pension Funds prior to the Effective Date will continue to have the right to a refund of those contributions, with interest, on future termination.

Employee-Nominated Trustees

The suggestion from the unions that provisions must be made for the appointment of employee-nominated Trustees was endorsed. The legislation will stipulate that the minimum employee representation among the Trustees of any Pension/Superannuation Fund should be as below:

• less than 5 Trustees at least 1 should be nominated by the employees;

• between 5 to 14 Trustees at least 2 should be employee-nominated; and

• between 10 to 15 Trustees at least 3 should be nominated by the employees.

The quorum should include at least one employee-nominated Trustee.

Pensions Arrangements for Disabled Children by their Parents

It was suggested that provisions be developed to facilitate the creation of a pension plan by parents for their disabled children. This proposal will be given further consideration by the Ministry of Finance for subsequent referral to Cabinet.

The Pensions Commission

A number of institutions also opposed the idea of creating separate regulators to supervise pension funds. It was suggested that one of the existing regulators should be charged with this responsibility. Numerous advantages to this arrangement were cited, for example, cost reductions and potential synergies.

This conforms to recent initiatives by the Government to create the Financial Services Commission (FSC) that will be the single non-bank financial institution regulatory and supervisory agency responsible for securities, insurance, and pension supervision. The proposed Office of the Superintendent of Pensions will therefore form part of the FSC.

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May 2001

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