Regulations for superannuation funds and retirement schemes

WITHIN the past decade more Jamaicans have lived to experience the age of retirement, which could be a time of much relaxation and peace of mind or a period of anxiety overtaken by our inability to provide for ourselves the way we did in our former days.

Perceiving that we might be subjected to poverty if we are not prudent, Jamaicans have invested in different saving arrangements for retirement, including superannuation funds which are employer-funded pension arrangements, and retirement schemes which are provided by financial institutions. Then, we were hit with the novel coronavirus pandemic. We see different areas of the economy being negatively affected, and some of us might be wondering if our savings for retirement are safe. Others of us might not care so much about the age of retirement anymore and might want to scale back on how much we are saving for the future, to ensure that we survive the present. Both are concerns that have been or are being considered in the making of laws that regulate the pensions industry.

The Pensions (Superannuation Funds and Retirement Schemes) (Investment) Regulations (the

“Regulations”) have several provisions aimed at mitigating the risk of the assets of a superannuation fund or retirement scheme being invested recklessly. The trustees of a fund or scheme are required to prepare a written statement of investment policies and principles, which should include financial risks to which the fund or scheme is exposed,and the diversification of the investment portfolio. This written statement is to be submitted to the Financial Services Commission, and a proposed investment may be deemed ineligible for acquisition by a fund or scheme if it is in breach of the provisions of the regulations.

Subject to exceptions, Regulation 16(1), for example, includes that the assets of a fund or scheme must not be invested to hold, acquire or purchase, any combination of investments in or loans upon the security of the obligations, property, and securities of any one person or associate of that person exceeding ten per cent of the fair value of the assets of the fund or scheme. Regulations 21 and 24 add that the assets of a fund or scheme may be invested in securities or obligations of the Government of Jamaica or of the governments of recognised jurisdictions, and in ordinary shares listed on a recognised stock exchange of Jamaica or a recognised jurisdiction. Companies that have their shares so listed are heavily regulated compared to private companies, and those regulations are geared towards securing investments made in such companies.

Prior to amendments made in 2019, Regulation 27(1) of the regulations allowed a fund or scheme to invest in the preferred or guaranteed shares of any solvent institution to which the regulations apply. The explanation of what qualifies as such an institution is given in Regulation 27(2) and covers an institution created or existing under the laws of Jamaica or of a recognised jurisdiction. The provisions of Regulation 27 did not prohibit, neither did any other provision expressly prohibit, a fund or scheme from investing in preferred or guaranteed shares of private companies in Jamaica or in a recognised jurisdiction.

With the introduction of Regulation 24A in the Pensions (Superannuation Funds and Retirement Schemes) (Investment) (Amendment) Regulations 2019 (the “Amendments”), the assets of a fund or scheme may be invested in equities and debt securities of a private company if, inter alia, the private company is incorporated under the Companies Act and the total amount so invested is no more than five per cent of the fair value of the assets of the fund or scheme. Regulation 24A therefore limits the total amount of the assets of a fund or scheme that may be invested in a private company — including investments in preferred or guaranteed shares as those would be considered equities. The requirement that the private company must be incorporated under the Companies Act means that Regulation 24A also prohibits investments in private companies in recognised jurisdictions. As a result, it appears that Regulation 27 now only applies to public companies created or existing under the laws of Jamaica or a recognised jurisdiction.

Those provisions prohibit the investment of all the assets of a fund or scheme in one entity so that instances such as those encountered during the pandemic, where productivity is reduced in certain sectors and the value of certain stocks and bonds decrease, are not likely to result in a fund or scheme losing all its assets. Also, with the reopening of the entertainment industry and the improvement of the tourism industry, the economy appears to be improving gradually. Of course, future developments are subject to what COVID-19 decides to do next, and the existence of improvements does not mean the absence of hardship.

Understanding that these are trying times, the relevant stakeholders have been considering amendments to the Pensions Act and accompanying regulations to allow for arrangements such as a “contribution holiday”. This could include a temporary suspension of contributions by members or sponsors to a fund or scheme during a pandemic or other national emergency, where the fund meets the prescribed minimum funding and solvency requirements and has a surplus. The participants of funds and schemes may also be allowed to take a refund of up to a maximum of twenty per cent of the accrued benefit in circumstances of financial hardship. That could come in handy for persons who are struggling to make ends meet. The flip side to that, however, is the reality that persons might end up saving less for retirement and ultimately regretting that decision when they retire. In any event, those provisions are still at the stage of being discussed and do not form part of the law as it stands.

The pandemic has caused some uncertainty in the economy but the regulations governing superannuation funds and retirement schemes provide some assurance that our investments in the future, which we hope to see, can be sustained despite financial challenges.

Kimberley Brown is an associate at Myers, Fletcher & Gordon, and is a member of the firm’s Commercial Department. She may be contacted at kimberley.brown@ mfg.com.jm. This article is for general information purposes only and does not constitute legal advice.