Madam Speaker, I wish to draw the attention of Members of the House of Representatives to the White Paper on the Reform of the Pensions System in Jamaica, which was tabled this afternoon.
The objectives of the reforms outlined in this Paper are twofold:
- First, to ensure that proper arrangements are made by and for Jamaicans during their working lives, so as to enable them to receive an adequate pension at retirement; and
- Second, to create an effectively regulated pensions system in which the contractual savings arrangements are made more secure and profitable for participants.
The tabling of this document is yet another step forward in the reform process, which is expected to culminate in the enactment of comprehensive legislation governing the pensions system in Jamaica.
The reform of the pensions system is a crucial part of the Government’s efforts to strengthen the financial sector and to improve its institutional structures and regulatory framework. Such efforts are in response to the fall-out in the financial sector that seriously jeopardized the viability of numerous pension funds, which were imprudently invested and had to be assisted by FINSAC. The drive to strengthen the regulatory and supervisory framework is aimed at preventing a recurrence of such a fall-out.
In the context of strengthening the supervision of non-deposit taking entities, a new supervisory authority, the Financial Services Commission (FSC) is due to begin operations shortly. This Commission will be responsible for the efficient regulation and supervision of entities dealing in securities, collective investment funds, investment advisors, the insurance industry and pension funds. To facilitate this new regulatory authority, new legislation was passed and existing Acts amended by the Houses of Parliament. The enactment of a new National Pensions Act is a crucial part of this process.
To this end, the White Paper on Pensions Reform outlines the provisions to be included in the proposed National Pensions Act. These provisions include:
- Licensing and registration requirements for Pension/ Superannuation Funds, and Managers/Administrators of pension funds;
- Full disclosure of information to the members of the Pension/Superannuation Fund and the Financial Services Commission;
- Accountability of the Trustees and Managers/Administrators of such funds for their operation;
- Investment Limits;
- Enabling self-employed persons and persons in non-pensionable employment to provide for retirement income at levels commensurate with the provisions of Occupational Pension Schemes;
- Funding for Parental Pensions by children;
- The voluntary indexation of pensions; and
- The mandatory Preservation and Portability of Pension Rights.
These provisions are all as a result of the original recommendations on the reform of the pensions system, the enhanced proposals in the Green Paper and the suggestions of the public. The process of reforming the pensions system thus far has been lengthy. This is because significant time has been spent soliciting, analyzing and incorporating the comments of interest groups and the general public. It is a credit to the people of Jamaica that their interest in the reform of the pensions system has been strong and sustained. This reflects the concern that our people have for preparing for their retirement, and for planning ahead. This concern has led to widespread support for the reforms. While there has not been, and will never be, total consensus on all the issues proposed, the general support for the pensions reform has been fuelling the Government’s efforts.
This, however, does not mean that there have not been challenges. One significant obstacle faced is the common misconception that the Government will be taking over pension schemes. Let me categorically state that this is incorrect. Private Pension Schemes and Superannuation Funds will continue to exist. The proposed National Pensions Act will seek to protect the rights of the members and retirees without inhibiting the possible array of schemes. The focus of this new legislation is on the effective regulation of all Pension/Superannuation Schemes and Approved Retirement Schemes, the Trustees, the Administrators and Investment Managers. This is similar to what currently applies for commercial banks, insurance companies and other regulated financial institutions, and should not in any way be a cause for concern.
Although the National Pensions Act will focus on the regulation of Pension/Superannuation Schemes and Approved Retirement Schemes, this does not mean that the broader reforms envisioned in the Green Paper have been forgotten. Importantly, the enhancement of the National Insurance Scheme, to provide more timely and meaningful benefits, is now being given further consideration by the Ministry of Labour and Social Security. Also, further work is being done by the Ministry of Finance and Planning to facilitate the proposed creation of funded schemes for public employees.
In most other respects, the proposals in the Green Paper and those outlined in this White Paper are similar. Changes have, however, been made to reflect the wishes of the public with regard to the mandatory inclusion of employee-nominated Trustees, the development of provisions to facilitate the creation of a pension plan by parents for their disabled children, and the merger of the proposed Pensions Commission with the Financial Services Commission – the single non-deposit taking financial institution regulatory and supervisory agency.
One other important change was made to reflect the concerns of the public. This was in respect of the proposed 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.
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 concerns of segments of the public have therefore been accommodated with regard 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.
I want to make it perfectly clear that the law will not be applied retroactively to contributions made before the date of enactment. So, let us say for example Madam Speaker, you have compulsory and voluntary contributions totaling $200,000 in A, B and C Company’s pension scheme at the time the Act is enacted, say, on February 31, 2010, then, Madam Speaker, you will be entitled to your $200,000 with interest at any time in the future. The current rules of your scheme with respect to the refund of contributions on termination will continue to apply to the contributions made prior to the enactment of the law, indefinitely. This proposal has been formulated so as to ensure that persons adequately prepare for their retirement, and not to cause any undue hardships.
This is precisely why the proposals in this Paper have been prepared through a lengthy process of discussion in which the input of the major stakeholders in the industry and the general public was sought. The Ministry of Finance and Planning and members of the Pensions Reform Committee have been tireless in their consideration of the numerous comments received from individuals and companies. Additionally, the Honourable Donald Buchanan, then Minister of State in the Ministry of Finance and Planning, and his technical team have attended several seminars to discuss the proposals.
In keeping with the Government’s commitment to transparency in the reform process, I take this opportunity to invite everyone to get a hold of this White Paper, examine its contents thoroughly and submit comments in writing to the Financial Secretary. Copies of the paper are available at the Communication and Public Relations Unit of the Ministry of Finance and Planning – 30 National Heroes Circle. Additionally, the document may be viewed at the Ministry’s website: www.mof.gov.jm. I trust that your interest in and support for the reform process will continue. Thank you.