A segregated fund for public pensions may be years away:
STATE EMPLOYEES began contributing to their pensions on April 1 under a new law that creates a pension scheme for public-sector workers, but those funds are being held in a special account controlled by the accountant general, for now.
The Government eventually plans to set up a managed fund for the contributions, but the timing is dependent on certain fiscal targets – specifically, the debt-to-GDP ratio falling to 60 per cent. The ratio is currently at around 111 per cent.
Sixty per cent is often used as the prudential measure for debt sustainability. Based on targets within the IMF agreement, Jamaica expects to hit that mark by fiscal year 2025-26.
Private pension fund managers are hopeful that the Government will tender the administration of the segregated fund, but checks this week with two of the large fund managers indicate that, so far, there has been no outreach to the market in that regard.
The Pensions Public Service Act of 2017established a definedbenefit scheme known as the Public Service Pension Scheme.
The Ministry of Finance, while commenting to the Financial Gleaner that the special account had been set up for the pension contributions in the interim, was not forthcoming on whether the Government, as employer, had began paying over its matching contributions into the account.
The ministry said the contributions from Government employees are presently placed in a special account in the Consolidated Fund called the Public Service Pension Scheme – which indicates that for now, the pension contributions remain commingled with the Treasury.
However, the finance ministry said that would eventually change.
“Please note that contributions will be placed in a special segregated fund from the general funds of the Government of Jamaica at a date to be appointed by the minister of finance and the public service ... ,” said the ministry via its communications arm.
“The segregated fund will have a governance structure place that will ensure prudence, transparency and probity,” it asserted.
The finance minister will determine the date for the fund’s creation once he is satisfied that the debt ratio has hit 60 per cent, but the decision is also dependent on the results of consultations with the auditor general on whether the fund’s operation would derail fiscal targets laid out in Section 48C of the Financial Administration and Auditor Act.
“My assumption is that there isn’t room in the Budget to take the money from the Consolidated Fund and put it into the segregated fund,” said pensions expert and actuary Constance Dalmadge Hall, to whom the Financial Gleaner reached out for comment.
“Once the segregated fund is set up, then the Government will need to pay the employees and its own contributions into the segregated fund on a monthly, preferably, but not less than annual basis,” said Hall, who was central to the consultations leading to the development of the public-sector pension scheme.
Pension deductions, starting at one per cent of wage or salary, from the pay of pensionable officers commenced on April 1. Pensionable officers are persons permanently appointed to an office in the public service, including teachers, constables, police and defence forces, and municipal corporations.
The scale of the deductions is being phased over four years, at the start of each fiscal period, until the contribution rate hits five per cent. In April 2019, the contribution rate will rise to two per cent; then three per cent in 2020; four per cent in 2021; and five per cent in 2022.
With the advent of the new pension scheme, the Ministry of Finance contributions to the Family Benefit Scheme, which amounted to four per cent of salary, ended in March, but that dependents filing claims would still be eligible for the benefits, as provided for under the new pension law. The Family Benefit Scheme law was itself repealed.