An economist has joined the call for employed Jamaicans to be automatically enrolled in a pension scheme to strengthen pension contributions and the retirement safety net. 

Keenan Falconer, economist with the UN Jamaican Economy panel, stressed that pension contributions are beneficial to the economy because they can be used to advance areas, such as education, health and infrastructure, as well as provide returns on investments that can boost spending.

Therefore, he says automatic enrollment in an approved scheme is one way to achieve greater pension planning and enable more savings among Jamaicans.

“Persons should contribute to a pension scheme to ensure retirement income and also to supplement social security and personal savings. When persons are a part of an approved pension scheme, fewer resources of the state will need to be directed to elderly persons should an unfortunate situation arise because the savings accrued reduces the burden on the state,” he explained.

“Pension contributions also have other benefits because those 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,” he added.

The economist pointed out that, currently, less than 20 per cent of the country’s labour force is contributing to an approved retirement scheme, with the private sector accounting for about eight to 11 per cent of that figure. He said the current low number of persons contributing to a pension scheme reduces the amount of funds that could be invested.

“This can have a negative effect on the country’s economy because states with higher savings rates and stronger social safety nets are generally more likely to be able to weather economic crises since they have stronger buffers,” he stated.

Mr Falconer explained that globally, the pensions fund industry was estimated to be valued at US$30 trillion in assets under management in comparison to $700 billion or about US$4 billion assets under management locally. He said for pensions to have an even greater impact on the economy, mandatory pension contributions should be considered.

“One of the things that can be done is to have mandatory public pension contributions which are complemented by membership in private schemes along with savings to derive the full benefit of an adequate safety net. This is pertinent especially in the Jamaican context, which historically has low rates of savings, and also based on the fact that we have an ageing population while persons are looking to retire earlier,” he explained.

Hugh Reid, general manager, JN Life Insurance, which manages the JN Individual Retirement Scheme, added that given the benefits of pension contributions to the economy, the Pension Industry Association of Jamaica’s (PIAJ) proposal to automatically enrol Jamaicans should be given deep consideration.  

“For the past two years, the PIAJ has suggested automatic enrolment which is when an employee who meets certain requirements is made a member of a workplace pension scheme without needing to ask to be part of it.  What this does is that it ensures that pension savings are automatically deducted from the employee’s pay cheque, and significantly simplifies the process for identifying and starting a retirement savings account. At the same time, an opt-out option maintains individual choice and responsibility for the decision to participate in the plan” he stated.

“The PIAJ suggestion should be considered because when more persons contribute to a pension scheme, it will reduce the burden on the state to provide care for the elderly and the public funds that would be spent in that area can be used otherwise. Also, pension funds can also be used to spur growth when these funds are invested in infrastructure and other areas. Therefore, if we are to develop as a country, increasing the pension contribution among members of the labour force is one area we will have to action urgently,” he added.

Mr Falconer also believes that auto enrolment should be considered given the benefits that can be derived from retirement schemes.

“Pensions provide capital for investment, contribute to financial stability and is an economical and efficient way to fund retirement. Therefore, saving for retirement should be encouraged,” he affirmed.