The Association maintains a cordial relationship with the relevant regulators in the pensions industry. However, the Association remains committed to ensuring the concerns of Members are effectively conveyed to the regulators and to insist on responses to these concerns.

FSC – PHASE 1

PHASE 1 of the Reform of the Private Pension System was completed in September 2006, with the passage of the Pensions (Superannuation Funds and Retirement Schemes) Act, 2004 (the Pensions Act). The Pensions Act introduced sweeping changes in the pensions industry in Jamaica. Before the Pensions Act, the Industry (excluding a few pension plans established by Acts of Parliament) was governed by the tax authorities via a single section of the Income Tax Act (Section 44).

Key provisions of Section 44 of the Income Tax Act are:

  • Ordinary Annual Contributions by an employer or employed person to an approved superannuation fund shall be tax deductible
  • Employer Contributions other than ordinary annual may be deductible in one year or spread over a number of years (up to 10)
  • To be approved the fund /employer must:
    • be bona fide established under irrevocable trusts in connection with some trade or undertaking carried on in the Island by a person residing therein
    • Have for its principal purpose, the provision of lump sums, pensions and annuities for its members
    • Have limits on the amount of pension that can be commuted to lump sum
    • Be a contributor to the fund
    • Not provide more favourable benefits, or more favourable distributions of any surplus arising on a winding-up of the fund, for a person who is connected with the employer or is a relative of such a person than for persons in similar circumstances who are neither connected with the employer nor are relatives of such persons
  • The Commissioner may:
    • require the trustees, administrator or employer to provide such information and particulars as the Commissioner may require
    • withdraw his approval of the fund if it appears to him
    • that any of the conditions specified are not satisfied, or
    • that any conditions imposed by him have been contravened, or
    • qualify his approval of the fund if it appears to him that, having regard to the value of assets in the fund and its probable future resources, the income of the fund does not need to be exempted from income tax in order for the fund to be of a size to enable it to be reasonably sure of meeting its present and future obligations.
  • Annual filing required for tax exemption if less than ten (10) members

PHASE 1 OF PENSION REFORM BROUGHT:

  • Licensing, Registration and Regulation of Investment Managers and Administrators
  • Registration of Trustees, (on satisfaction of specific criteria)
  • Registration of Plans
  • A slew of required plan provisions

TRUSTEES

  • Board of Trustees must include representatives of active members, pensioners and deferred pensioners if more than thirty (30) persons in this category
  • Number of Employer representatives on the Trustee Board cannot exceed fifty percent (50%) plus 1 and this limit also applies for the quorum for meetings
  • Must meet at least annually
    • Have responsibility for administering plan and managing the assets. These activities can be outsourced, but must regularly review the performance of appointed agents
    • Must establish and review policies and procedures for the governance of the Fund, related to conflicts of interest, complaints resolution, anti money-laundering
  • Must appoint investment manager, administrator, actuary, attorney
  • Must provide members with handbook – plan provisions in straightforward language

MEMBERS

  • Quorum for meetings at least thirty percent (30%) of members are entitled to vote
  • Most amendments to Trust Deed/Plan Rules must be approved by members
  • If there is a perception that benefits are being jeopardized, the recourse is to the governing body, the FSC.
  • Can convene meetings

CONTRIBUTORS

  • Members and employer’s ordinary annual contributions to be remitted to Investment Manager within 7 days of end of month to which contributions apply
  • Special contribution – quarterly
  • Employees can contribute up to 20% of their salary less the amounts paid by their Employers to an Approved Retirement Scheme or Superannuation Fund

BENEFITS

  • No service requirement for ill-health retirement
  • Maximum pension increased to 75%; final remuneration after 37.5 years’ service
  • Excess contributions in Defined Contribution (DC) Plans must be used for benefits for members – pension increases, etc
  • Lump Sums on death cannot exceed bigger of Member’s Interest in plan or two times salary
  • Pensions less than one-half National Minimum Wage may be distributed as lump sum, at member’s election
  • Permissible Normal Retirement Ages (NRA) i.e. 60 to 65 years
  • Latest Retirement Age -not more than 5 years after NRA
  • Early Retirement – must be allowed – within 10 years of NRA

PARTIAL WINDING-UP

  • Must include rules for partial wind-up

PORTABILITY

  • Benefits must be portable (transferable from one approved fund to another)

WIND-UP

  • Wind-up must be approved
  • All active members to be treated as vested regardless of age/service on wind-up date
  • Specific order of priority for allocating assets
  • FSC approval of scheme of distribution of surplus required before settlement
  • Strict reporting requirements on progress of the winding-up

INVESTMENT MANAGEMENT

  • Plans must have Statement of investment Principles and Policies (SIPP)
  • Prohibited transactions identified
  • Conflicts of Interest policy

ADMINISTRATOR

  • Specific reporting requirements, including timelines for submission of reports to FSC – Annual Report, Actuarial Valuation Report.
  • Audited financial statements and actuarial valuation reports to be submitted within strict timeframes
  • Member’s Annual Statement must meet minimum standard (set out in Governance Regulations)
  • Prescribed benefit statements on termination of service

FSC – PHASE 2

The Association (PIAJ) has made representations to the Financial Services Commission on the proposed amendments to the Pensions (Superannuation Funds and Retirement Schemes) Act, popularly referred to as Phase II amendments. Phase II has been a few years in the making and we have been actively involved, having had members sit on various sub-committees tasked with reviewing the proposed amendments. PIAJ, like the wider pensions industry, anxiously awaits the release of the draft bill. The FSC has assured the Association that the draft bill will be available for review soon and that further comments will be invited from pension stakeholders at that time. A few of the changes expected under Phase II include:

  • permitting membership in both superannuation funds and retirement schemes;
  • removal of the requirement for member and pensioner trustees for a retirement scheme;
  • locking in of compulsory contributions with the ability to unlock same only in specified circumstances;
  • removing the requirement for member approval of amendments;
  • portability of funds from recognised jurisdictions; and
  • introduction of a 5-year cap on the vesting period of members of a superannuation fund.

TAX ADMINISTRATION JAMAICA (TAJ)

Members of the Association recently met with representatives from the Pensions Department to discuss the removal of the statutory maximum pension limit as it relates to members of pension funds. It was submitted that the rationale for the limit was not clear. Further, there is no substantial reason that a member of a defined contribution fund should not receive a pension based on his entire Member’s Account but instead be restricted to a pension capped at 75% of his remuneration at retirement. It was also recommended that the limit of 37.5 years of service be removed from the maximum pension formula. Arguments were also submitted as to how any potential revenue loss could be mitigated or recovered. The representatives from TAJ assured the PIAJ team that the recommendations would be taken into consideration when submitting proposed changes to the Income Tax Act.

FINANCIAL SERVICE COMMISSION (FSC)

In 2015 representatives of the Association met with representatives of the FSC. Some of the matters discussed included:

  1. FSC’s impending zero tolerance approach
    • The PIAJ team was assured that the FSC would assess any requests for extension to comply, on a case by case basis.
    • The FSC agreed that discussions with administrators and investment managers were necessary in order to obtain information as to the constraints the managers faced in complying with requirements of pensions legislation.
  2. Statutory Filings
    • The FSC expressed that there were several administrators, investment managers and retirement schemes that were persistent offenders as it relates to late filings.
  3. Superannuation Funds
    • The FSC indicated that reluctance of Trustees to sign the Certified Financial Returns will no longer be an issue after the Phase II amendments as the responsibility for same will be upon the administrator and investment manager.
    • The PIAJ team was assured that fixed penalties for breaches would not be applied across the board however certain offences would trigger enforcement action
    • The FSC expressed concern at the number of incidences where sponsors have not been paying over the contributions deducted from Members’ salaries
  4. Service Standard of the FSC
    • The FSC acknowledged that there was an issue as it relates to the delays in its response time and promised that the backlog of matters was being worked on assiduously.
  5. Phase II Amendments
    • As at June 2015 the amendments were at the drafting stage. Stakeholder recommendations would drive any other necessary amendments after the draft Bill was issued.

BANK OF JAMAICA (BOJ)

In August 2015, BOJ issued a discussion paper in which it expressed interest in relaxing the limits on investments in foreign currency assets for pension funds. It was proposed that the current limit of 5% of total assets be raised on a phased basis beginning March 2017. The paper considered the macroeconomic costs of doing same versus the diversification benefits. Some of the concerns of the BOJ included: one-off reduction in the GOJ security holdings which would impact the yield curve; sudden shifts in portfolio allocations resulting in significant domestic bond price volatility, increased volatility in the foreign exchange market and decrease in the Net International Reserve (NIR).

The PIAJ submitted its comments on the said discussion paper indicating that it was not opposed to a phased increase of the cap on foreign currency investments and stating that it was in support of the adoption of the prudent man investment approach. Among the proposals made, it was submitted that the adoption of that approach and the gradual increase in the cap should aid in preventing significant impact on the NIR. Additionally, it was recommended that a part of the current foreign currency holdings be reallocated to investment grade securities until the cap is lifted and that US denominated GOJ securities be excluded in ascertaining pension funds’ foreign security exposure. The BOJ was advised that the PIAJ does not anticipate a one-off reduction in domestic GOJ securities for several reasons, a few of which included the fact that pension funds already have the ability to sell these securities, the current local GOJ bond market is relatively illiquid and that pension funds will definitely consider the potential negative yield impact on their portfolio prior to any such sale.