There was progress in the Jamaican pension fund industry, notably the accessibility and support provided by the regulatory authorities, but the year was also characterised by lack of action on the phase two reform programme decided two years ago.

This phase deals with the key elements of vesting, portability and locking-in, which would ensure that the next generation of retirees would earn an acceptable pension at retirement.

Finance Minister Audley Shaw has said the legislation is being drafted by the chief parliamentary counsel.

Here's how the pensions sector unfolded over the year.

The National Consultation on Survey Results of Selected Communities organised by HelpAge International indicates that many senior citizens are living in deplorable conditions.

In February, Andrew Gallimore, a state minister in the labour and social security ministry, highlighted the results of the report and stressed that it was crucial for individuals to seriously consider their retirement plans including their contributions to the NIS.

Salary amendment

Also in February, the Senate passed the Amendment to the Pensions (Prime Minister) Act allowing a person who ceases to hold the office of Prime Minister after September 11, 2007 to receive a pension equivalent to two thirds of the annual salary pertaining to the current office of Prime Minister, instead of an equivalent salary.

In March, amendments to the Income Tax Act were effected.

The law now allows a member of a pension plan to contribute a maximum of 20 per cent of emoluments to a pension plan, which is inclusive of the employers contributions.

Assuming, for example, that the rate paid by both employer and employee - the basic contribution rate - is 5.0 per cent, the employee can now contribute a further 10 per cent, which is referred to as the additional voluntary contribution or AVC.

The amendments also allow trustees to increase pension payments in line with inflation so long as the pension plan can so afford.

This will ensure that pensioners' standard of living is not compromised after retirement due to the devastating effects of inflation.

The regulatory authorities have also granted an increase in the maximum pensions from 66.66 per cent of final salary to 75 per cent of final salary on completion of 37.5 years of service, up from 25 years.

The major impact of the amendment was on self-employed persons and those not currently contributing to a pension plan.

Under this amendment, these two groups can contribute 20 per cent of their emoluments each year to a retirement scheme with the same tax treatment as allowed under a pension plan.

Previous to this amendment, the limit was set at $6,000 per year, making retirement schemes unattractive.

Lastly, the previously imposed limit on lump sums of $120,000 will be removed and be subject to an actuarially computed formula.

Also in March, workers at Caribbean Cement Company sought dialogue with the Minister of Finance and the Financial Services Commission (FSC) concerning the continued status of their refunds on termination or retirement.

Would be refunded

Prior to implementation of the Pension Act in March 2005, workers on termination or retirement would be refunded their contributions plus the after-tax amount of the employer's contribution.

In May, the Financial Services Commission (FSC) indicated that the size of the local pension fund industry was US$150 billion, up from the US$132 billion indicated in 2007.

However, of the 537 pension plans that applied for registration, only 115 had completed and provided the required documentation and only four were approved.

Later in the year, Shaw said the number had grown from four to 20.

Of the 1,946 trustees who applied for registration, 64 per cent were approved but their certificates of registration will only be issued after the associated pension plan is approved.

The Taxpayer Audit and Assessment Department (TAAD) announced that the upfront withholding of tax on the investment income of pension plans would be discontinued.

This news was welcomed by pension funds investment managers and trustees who have complained bitterly of large sums outstanding for many years.

The TAAD advised that to obtain a Withholding Tax Exemption Certificate, pension funds were to ensure that they were in compliance with the provision of updated contribution listings, audited financial statements and actuarial valuation to the TAAD.

Arrears to be reduced

In September, Finance Minister Shaw at a pensions seminar organised by Prime Asset Management Limited in collaboration with the Private Sector Organi-sation of Jamaica (PSOJ), promised that government would substantially reduce the arrears of $7 billion owed to pension plans in outstanding withholding taxes in the current fiscal year.

He also said the Government's desire was to make all public pension plans contributory.

The pensions seminar was also addressed by Michael Naameh, executive director of Crown Agents Investment Management Limited (UK), who spoke on member education and the steps trustees, sponsors and human resource departments can take to ensure that members take a more proactive stance in their retirement planning; Dr John Turner, executive director of The Pension Policy Centre; and attorney-at-law Nicole Lambert, former deputy solicitor general of Jamaica.

In mid-September, the global financial crisis began to unfold with the failure of numerous financial institutions causing some disruption to the Jamaican financial landscape.

The repercussion locally resulted in significant pressure on the local currency with the Bank of Jamaica increasing interest rates along with other policy measures.

Pension funds investments were not spared as Jamaican dollar bonds, GOJ US Dollar bonds and local equities fell in value.

Since the start of the year, the All Jamaica stock index has fallen by 33 per cent; the benchmark six month Treasury Bill yield has increased from 13.3 per cent in January to currently 24.5 per cent; the local currency has depreciated by 13.5 per cent, compared to a 5.2 per cent decline in 2006; and global bond prices have fallen by approximately 20 per cent.

LOOKING AHEAD

The depth and duration of the global financial crisis will present challenges for the local economy and pension stakeholders in the year ahead.

Still required is action by the regulatory authorities to align the contribution limits of the Income Tax Act (20 per cent) and the Pension Act (10 per cent) to allow members to make a more meaningful contribution to their pension plan; and progress on pension reforms.

The FSC, sponsors, unions, human resource departments, investment managers and administrators should also seek to improve members' level of understanding and appreciation of their pension plan to ensure meaningful pensions at retirement.

Rezworth Burchenson is Managing Director of Prime Asset Management Limited, a company engaged in pension fund investment management and administration.

Rezworth Burchenson, Guest Writer

rburchenson @primepensions.com