Hugh Reid, General Manager, JN Life Insurance Company Limited wants Jamaica to consider a micro-pension scheme, as one key strategy to increase the number of persons enrolled in a retirement scheme and reduce the possibility of a pension crisis in the future.
Mr Reid said with only roughly 20 per cent of the labour force enrolled in a pension scheme, a micro-pension scheme should be considered especially for those who are self-employed or not contributors to a superannuation fund. He explained that a recent Financial Services Commission (FSC) study revealed that 75 per cent of Jamaicans not enrolled in a pension scheme were willing to contribute to one. He posits that the time is right for Jamaica to consider going in this direction.
“A recent FSC study revealed that 74.8 per cent of Jamaicans not enrolled in a pension scheme were willing to contribute to one. The study also revealed that many of the respondents were willing to consider it especially if it was tied to life insurance or there was some other form of incentive. Consequently, we should explore this option in addressing the current issues we are having with pension contributions,” Mr Reid noted.
A micro-pension is a savings plan created for, but not restricted to, self-employed individuals and for persons working in organizations with a small number of employees, typically, less than three employees. It allows individuals to make financial contributions towards the provision of pension for their retirement or the individual being unable to work again. Its main aim is to guarantee a secured future through steady income at retirement.
“Micro pensions are attractive and should be considered as one way to ease our looming pension crisis because they have the benefits of flexible contributions and allow for withdrawals prior to retirement,” Mr Reid explained. “It would also benefit the economy because it would broaden the pool of persons who contribute to a pension scheme and increase the pool of pension savings available to the country. In essence, the aim of micro pensions is to create a more accessible, affordable and all-inclusive pension system which is a win-win for Jamaica.”
The General Manager pointed out that micro-pensions work by splitting the individual’s contribution into two portions. “There is a contingent portion of about 40 per cent, typically and a retirement benefit portion of about 60 per cent. The contingent portion of the contribution can be accessed totally or partially after an initial payment period, if needed. Thereafter, subsequent withdrawals can be accessed at specified intervals. Contributors can have the option of converting their contingent portion to their retirement benefit portion totally or partially at the end of each year. Contributors upon retirement and having attained the mandatory age can access their retirement benefits,” he said.
The insurance executive said micro-pensions were different from the National Insurance Scheme (NIS) in that the NIS is a compulsory contributory funded social security scheme covering all employed persons in Jamaica.
“The NIS provides some financial protection to the worker and his or her family against loss of income arising from injury on the job, sickness, retirement, and, or death of the bread winner,” he explained.
He added: “All persons between the ages of 18 and 70 who are gainfully occupied are required to be registered with the NIS. Self-employed persons contribute at a rate of six per cent on maximum earnings of $6 million per annum while employed persons contribute three per cent and their employers contribute the other three per cent. On the other hand, with the micro-pension scheme, it is voluntary and comes with a savings portion.”
Mr. Reid added that micro-pension schemes already existed in some countries in a similar economic situation to Jamaica.
“Micro-pension schemes exist in India, Rwanda, Ghana, Papua New Guinea and Nigeria. These countries have a large number of persons in the informal economy similar to Jamaica and were able to introduce micro-pension schemes. Jamaica should consider this as a viable option to ensure that more of our labour force have some retirement savings,” he added.
Mr Reid said pension contributions can also assist in economic development because the funds represent a significant pool of resources that can be used to advance development in areas such as infrastructure, health and education.
“Pension funds are normally invested in various assets such as securities, stocks, bonds, real estate, commercial paper and repurchase agreements which help to provide a steady stream of income that can be used for consumption or more investment which helps to grow the economy. Therefore, as a country, we should work towards enrolling more persons in approved pension schemes,” he said.
