Jamaica's private pension industry is worth close to $200 billion in value and growing, as regulator Financial Services Commission makes (FSC) progress on registering new schemes.

Financial institutions are now gunning for business from among the 90 per cent of the private sector workforce not now part of any structured plan to finance their years in retirement.

An estimated 600,000 to 700,000 working Jamaicans in private sector jobs are not on any plan, according to two pension experts, Rezworth Burchenson and Carl Aldridge.

A government pension scheme is under consideration for another 40,000 to 60,000 public sector workers whose only coverage now comes from the National Insurance Scheme.

Encouraged by a March 2008 amendment to the Pensions Act that allows financial houses to create more attractive individual retirement accounts (IRAs), several financial houses have rolled out plans in recent months.

Five iras pending

Six IRAs have been approved by regulator Financial Services Commission, and another five are pending.

Fund managers do not anticipate that IRAs will pull the 80-90 per cent of uncovered workers into plans, but they see potential for a fivefold growth in business that would take Jamaica closer to 50 per cent coverage as in other countries.

According to Burchenson, managing director of Prime Asset Management, only about 66,000 Jamaicans are now part of pension schemes, representing about 10 per cent coverage.

"We are a far way from what obtains in other countries," says Burchenson, whose company launched its IRA in July.

Prime Asset, which manages $15 billion in pension funds for local companies, is pushing IRAs as hassle-free alternatives for companies previously intimidated by the regulatory requirements of setting up their own pension schemes for workers.

"With an IRA, all those requirements will go away. Companies can offer IRAs with minimal administration," he said.

The law now permits Jamaicans tax-free retirement savings to a maximum 20 per cent of their annual income. Previously, the tax-free cap was $6,000.

The revision also allows lump sum deposits to an IRA not excee-ding 20 per cent of annual income, rather than the $120,000 lump sum limit that obtained before.

One plan per person

But the law still does not allow persons already in a pension scheme to save in an individual plan.

And it prohibits the transfer of pension savings from a superannuation fund to an IRA.

In the latter case, however, there is an exception.

"An individual who has been made redundant can transfer that money as a lump sum from their old pension plan," said Carl Aldridge, manager of the pensions business development unit at Jamaica Money Market Brokers, speaking not to the issue but as a point of information at the launch of JMMB's IRA in September.

"For anyone else, if the lump sum is above 20 per cent of estimated annual income, it would be a problem," he said.

Karla Small-Dwyer, senior legal officer with the FSC, said the law is being changed to allow emplo-yees in company-sponsored pension plans to increase their contributions to 20 per cent of annual income.

Typically, workplace pension plans involve a five per cent contribution from the employee, matched by an equal contribution by the employer.

Employees, if they wish, can contribute up to 10 per cent of salary, but the employer is not legally required to match the voluntary savings.

Prime Asset Management, Sagicor Jamaica, JMMB, Scotiabank Jamaica and COK Cooperative Credit Union are among the firms offering arrangements to invest retirement savings in bonds, fixed-income securities and other instruments.

Heightened interest

Jacqueline Sharp, new chief financial officer of Scotia Group Jamaica, who until recently was general manager of Scotia Jamaica Insurance Company, is reporting heightened interest from companies seeking to start retirement plans for their staff.

ScotiaBridge IRA, launched in March this year, has taken in $120 million in subscriptions.

"In our short six months of operation, we have added approximately 2,000 plan members," said Sharp.

"We have been getting a lot of interest from self-employed individuals and persons employed to companies that do not offer pension plans."

JMMB, the latest to launch an IRA product, says it is aiming to cut operating costs for small and medium-size businesses.

"What we are offering is a pension scheme which is already in place. They can start contributing immediately with minimal hassle and minimal paperwork. They will have a pension plan in place for staff," said Aldridge.

The FSC in March 2009 estimated the private pensions market at $196.5 billion, compared to $132 billion in 2006/07.

The FSC has wrapped up registration of 297 of a potential 490 schemes, suggesting the size of pension assets will end up decidedly larger than the value reported in March.

Sagicor remains the top fund manager with $47 billion under management at December 2008.

Only the publicly operated National Insurance Fund (NIF) commands comparable assets.

The NIF, the repository and administrator of NIS contributions, manages a $56-billion fund.

Growth expected

Pensions expert, Professor Ian Tonks, of the University of Exeter Business School in the United Kingdom, agrees with the general projections for growth in Jamaican pensions funds.

He suggests however, that the increase was likely to come from a system of defined contribution (DC) schemes in which an emplo-yee's benefits during retirement are determined by the worker's contributions and the investment performance of those funds, rather than on years of employment and salary scale.

"The typical pay-as-you-go method is unsustainable and has led to encouragement of DC pension schemes as opposed to defined benefit schemes," said Tonks earlier in September as speaker at a pension forum organised by Prime Asset in Kingston.

Jamaica stands out with a large pension funds-to-GDP ratio which, he said, runs ahead of countries like India and China.

Jamaica's pension market, private and public, tops $250 billion. GDP in 2008 was a nominal $923 billion.

avia.collinder@gleanerjm.com sabrina.gordon@gleanerjm.com