Q&A-Diaspora member enquires about changes in pensions legislations in JA

Q: I migrated to the USA in the 1970s and have lived here since then.  I recall not being impressed with the administration of occupational pensions in Jamaica at that time.  I've been reading in the newspapers on the Internet that the Pensions legislation in Jamaica changed recently.  We here in the Diaspora maintain an active interest in what happens in Jamaica. I would appreciate if you would explain the key changes that this new legislation brings to the administration of pensions in Jamaica.

A:  Thank you for your interest in the recent developments in the pensions industry in Jamaica and in particular the Pensions (Superannuation Funds and Retirement Schemes) Act 2004 and enabling Regulations (Governance)(Investments)(Registration, Licensing and Reporting) 2006.  Prior to this legislation, all occupational pension plans in the private sector were governed by the Income Tax Act 1955 and the enabling Rules: Section 44 – Superannuation Funds, Section 44A – Retirement Schemes and Section 61 – Retirement Benefits Scheme (also known as Top Hat). 

As you will observe, Section 61 is not included in the new Pensions legislations and these plans can no longer be submitted for approval to TAAD (Tax Audit and Assessment Department).  The omission of Retirement Benefits Scheme is one of the many changes to the new Pensions legislations.  The following are highlights of some areas that have changed when compared to the requirements under the Income Tax Act 1955.

The current legislations are in keeping with best practices around the world and I hasten to add that you would be very proud of how the system operates as opposed to when you were here in the 1970s.  It is not perfect but commendations are in order to all the various sectors that administer the legislations on a day-to-day basis.  It is easy to see that there is a lot of effort being made to ensure proper governance and protection of each contributor’s contributions to these plans.  A copy of the Pensions legislation is available on the Ministry of Justice website: www.moj.gov.jm/laws and therefore you can review it online at your convenience.

            Superannuation Funds versus Retirement Schemes: As you can recall, Superannuation Funds are Employer-sponsored type retirement savings plans which were approved on the basis that the Employer must be a contributor to the Fund in order for the Fund to qualify for tax-deductible and tax-deferred benefits.  The Employer may establish the Fund on a contributory or non-contributory basis i.e. the Rules may be established for the Employees to contribute or not to contribute.  On the other hand, Retirement Schemes are individual-sponsored type plans and it is the Employee who establishes the Scheme and the Employer may contribute. 

            Neither the Fund nor the Scheme can be administered or operate unless it is registered by Financial Services Commission (FSC): the regulatory body for Superannuation Funds and Retirement Schemes., and approved by TAAD (Tax Payer Audit and Assessment Department).

Contributions: Superannuation Funds’ Rules could be designed for the contributions to be 20% of gross annual income with no ceiling on the contribution: 10% maximum for the Employer and 10% maximum for the Employee.  Where the Employer did not contribute the maximum 10% the Employee cannot increase his/her contributions in excess of the 10%.  There is no change as yet.  It is expected that in time, the Income Tax Act will be amended to provide for the same contribution levels as it is currently for Retirement Schemes.  

However, Retirement Schemes could only qualify for 20% to a maximum of $6,000.00 per annum.  This has now changed and Retirement Schemes now qualify for 20% of gross annual income with no maximum contribution: The Income Tax Act 1955 was amended in March 2008 to reflect this change.  In the 1970s, there were very few financial institutions offering Retirement Schemes.  Today, with the liberal contribution levels for Retirement Schemes, if you were to visit Jamaica you will find many financial organizations offering and advertising Retirement Schemes that have their own product name.  It is now a very dynamic landscape when it comes to retirement savings opportunities for Employees who are self-employed or not members of an Approved Superannuation Fund.

I am sure you would also be pleased to know that the Pensions Act 2004 now levies a fine to Sponsors (including Employers) who deduct contributions from an Employee’s pay and do not submit it to the Administrator within 14 days of the contributions being deducted: Section 53.  This is an offence and liable on summary conviction before a Resident Magistrate to a fine not exceeding JA$3M.

Information to Members: The legislation has provided a 360-degree turn around for communication to Plan Members.  During the 1970s, unless you were employed to a really progressive Employer, the Trust Deed and Rules for Superannuation Funds were kept in a vault and no one except for the Trustees and the Employer could see these documents.  In fact, if you asked any question about it, one would quickly be referred to the Member’s Handbook, which as you know is not the legal document for the Superannuation Fund.  This is no longer the case.  The Pensions Act 2004, Regulations (Governance) 2006 section 12 addresses Disclosure to participants and beneficiaries.  Therefore, where a Member of a Fund or a Scheme, requests a copy of constitutive documents (Trust Deed & Rules or Master Trust Deed and Rules, schedules and amendments) s/he must be given a copy within 15 days of the request being received by the Trustees.  The Trustees may levy a fee to the Member/beneficiary to cover the cost for photocopying: and that is reasonable since these documents are now quite bulky.

Constitution of the Board of Trustees: Section 3 Regulations (Governance) 2006 now requires that the Plan Members must nominate and elect their own member-appointed Trustee to the Board of Trustees.  It is further required that the composition of member-appointed trustees must be at least 49%.  This is a major change and has been welcomed by Employers and Employees.  The Board must also allow for representation of pensioner and deferred pension appointed Trustee.  Therefore, the requirement is that when there are 30 or more deferred pensioners and/or pensioners they must convene a meeting and elect a representative to the Board of Trustees. These categories of Trustees cannot be removed from the Board except by the Members who voted them on to the Board.

Member may have recourse to the Commission – section 38 of the Pensions Act 2004: Forgive me but I must restate this Section, as it is one of the most interesting sections of the legislation. Section 38(1) states: A member who is of the opinion that his benefits under an approved superannuation fund or approved retirement scheme are being jeopardized, may inform the Commission in writing stating the manner in which the benefits are being so jeopardized.  Section 38(2) states: The Commission shall make an enquiry into the matter and take such steps as it considers appropriate and inform the member accordingly.  I don’t know how Jamaica’s historians will evaluate this section of the legislation but it must be regarded as a clause, which empowers all Plan Members and their beneficiaries to take action with the full support of the law where s/he is of the opinion that their benefits are being jeopardized.  The FSC has its own website and therefore persons can submit their complaints online. 

Some Employers and Trustees may see this as a negative but for those who see it positively, they have taken steps to ensure that within the company, there is an effective communication programme for Superannuation Funds using the Internet or intranet medium.  This is also the case for insurance and financial institutions that offer Retirement Schemes.  Hence, there is now a proliferation of communication on these plans.  This is a major and great change.  After all, one must conclude, that if the legislation did not have such a clause, Jamaica would remain in the good old days where it was difficult to get substantial information on your retirement savings.

I do hope that the foregoing has provided you the opportunity to enquire more deeply into what’s happening in Jamaica’s pensions industry.  Keep in mind though that there are other legislations which govern retirement savings: NIS Act 1966, NHT Act 1967 and there are those legislations, inter alia, which are specific to the Civil Service, Teachers and our Police and Army.

If you have any further comments or questions on the response provided, please do send your questions and comments to the Herald.

Disclaimer: The information provided is a guide and does not purport to provide any advice on any particular financial product for retirement financial and lifestyle planning.  Much more information is needed to do so.  Hence, you are advised to obtain advice from a Financial Services Commission licensed (FSC) insurance sales representative and/or an investment advisor.