Public sector pension fund yet to be set up
THE Government is yet to set up a segregated fund to manage public sector pensions, years after passing legislation to make the change. Officials from the Pension Industry Associaion of Jamaica confirmed that the inflows remain without a fund manager.
Tanisha Weir-Grant, director of communications and customer service at the Accountant General’s Department (AGD), indicates that the planned segregated fund for public sector worker deductions will not be put in place until fiscal objectives stated in the enabling Acts are satisfied — these include reducing the debt to gross domestic product (GDP) ratio to no more than 60 per cent.
Legislative changes were made to facilitate the change after the Government deemed that the payment of pensions was unaffordable and unsutainable from the Consolidated Fund, and that the new plan would contribute to sustainability and reducing budgetary stress. Since the implementation of the legislative changes, at least five per cent of he salaries of public sector workers are being deducted at source.
However, the monies collected are flowing into the Consolidated Fund instead of a separate fund and form part of total pensions paid out each month by the Government. It is not clear how much money is collected from public sector workers each year, but Government data show a total of $36 billion was paid out in pensions during the 2020/21 fiscal year to retired public sector workers.
The Jamaica Observer requested the total collected in deductions, but the communications manager indicated that this figure was not immediately available.
Prior to changes in the legislation, public sector workers such as police, teachers and central government workers were awarded pensions through an unfunded, defined benefit system. Some public sector workers made contributions but these contributions bore no relationship to the benefits received which were paid from the Consolidated Fund.
It was also proposed that the Government would contribute $17 billion per annum for 40 years to fund the legacy liability of the pension system plus a further 3.5 per cent of employers’ payroll annually for ongoing service costs. Government salaries average about $146 billion per year.
Deductions under the new scheme began in June 2017. The police, teachers and parochial officers began by contributing 2.5 per cent. Police officers had already been contributing 1.7 per cent while teachers did not previously contribute to their pension. Civil servants continued to contribute four per cent of their salaries to their pension (previously known as a family benefit). From April 2019 total contributions for all groups were slated to increase to five per cent.
For the new fiscal year the Government has budgeted $38.1 billion for pensions, or 4.6 per cent of total expenditure. However, between 2019-20 and 2024-25, expenditure — based on its projections — is expected to increase by approximately 29 per cent.
While public sector funds remain uninvested, privately managed pension funds registered as at June 30, 2022 grew by 27 per cent to $705.58 billion, up from $552.7 billion in June 2018 — the similar period in which the public sector fund should have started.
Legal change
In September 2017 the Senate passed the Pensions (Public Service) Act of 2017, which had 62 amendments, and the Constitution (Amendment) (Establishment Fund) (Payment of Pensions) Act of 2017.
The Pensions (Public Service) Act 2017 established a defined benefit contributory scheme. It also provided for the establishment of a segregated fund for contributions; gradual increase in the retirement age to 65; and changing of legislation regarding public sector pensions in a single statute, while repealing several enactments previously dealing with pensions.
The Constitution (Amendment) (Established Fund) (Payment of Pensions) Act 2017 also amended the constitution to provide for the payment of pensions, gratuities and allowances out of the pension fund.