While being careful not to classify Jamaica’s pension system as one in crisis, Dennis Chung says that it definitely has its challenges, which, if not addressed properly by the Government, could have a devastating impact on the country in the future.
In an interview with the Jamaica Observer, Chung, CEO of the Private Sector Organisation of Jamaica (PSOJ), said that there are two challenges which now face the Government in its efforts to reform pension arrangements.
He identifies public sector pension reform as the first challenge. “Pension liabilities [are] not accrued from being set aside, [but are] paid from the Consolidated Fund,” Chung said. Instead he said that Government’s treatment of public sector pension should be similar to that of private where it is “must be put aside — allocated as a recurring expenditure separate from the Consolidated Fund”.
Secondly, he noted that the current pension model, which is mainly managed by the National Insurance Scheme (NIS), is unsustainable. In his presentation Tuesday at the 8th Prime Asset Management/PSOJ Pension Forum, Chung described the NIS as “woefully inadequate”, and said that it “means private pension (company-sponsored and personal pension schemes) and savings/investments will have to fill the gap” in post-retirement life. “The government pension fund must ensure that it continues proper governance practice and ensure maximum return to taxpayers who have no choice but to contribute,” he said.
According to statistics, only nine to 10 per cent of private sector employees have coverage from a company-sponsored pension scheme, while the other 90 (plus) per cent contribute solely to the NIS.
“Part of education should be about saving and cash management,” Chung told Sunday Finance, while calling on the Government of Jamaica to implement policies that “encourage a culture of saving” and “provide tax incentives on long-term savings”. He added: “Legislation actually restricts how one invests.”
But the PSOJ CEO also believes that individuals need to take responsibility for their future.
“Ultimately, solving this problem comes down to improving the savings profile by individuals… Individuals must start actively planning for retirement,” Chung said in his presentation. He posits that an investment into a pension fund should form part of the ‘pay yourself first’ principle.
When asked about the tight fiscal space which affects both the Government and the average citizen, Chung responded: “The question is not about if we can afford to have a pension plan; rather it should be if we can afford not to have a pension.”
Taking into consideration a profile of our population, which is ageing and life expectancy is increasing, Chung believes that improving pension arrangements now will have a two-fold effect in the future: on the macro level the tax credits that Government provides through pension schemes will save the country from economic and social instability and underdevelopment in the future; while at the micro level, individuals who invest in pension plans now can avoid the stress of living and health expenses coupled with high tax burdens after retiring.
In his presentation Chung stated, “Inadequate pension arrangements mean that government accounts for [the] working population will have to be subsidised. This could have a negative impact on fiscal accounts and taxation and ultimately GDP growth. Therefore, urgent attention is needed to address this looming crisis.”
He concluded: “From stats Jamaica will have a significant pension shortfall resulting in fiscal pressure. Immediate action [is] needed [for] Government and pension funds to address.”