VZCZCXYZ0015
RR RUEHWEB

DE RUEHKG #0634/01 0891604
ZNR UUUUU ZZH
R 301604Z MAR 06
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 2524
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHSJ/AMEMBASSY SAN JOSE 1810
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS KINGSTON 000634 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CAR (WBENT), WHA/EPSC (JSLATTERY) 
 
STATE ALSO FOR HR/OE (CINTRON) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR L LAMONICA 
 
E.O. 12958:  NA 
TAGS: ECON EFIN JM
SUBJECT:  JAMAICA OVERHAULS PENSION SYSTEM 
 
 
¶1.  Summary:  The Senate has approved the contentious 
Pensions (Superannuation Funds and Retirement Schemes) Act 
to reform and regulate the pensions industry in Jamaica. 
The Act was passed in 2004 and came into effect on March 
1, 2005, but the regulations supporting the Act were sent 
to a Senate Committee for review amid concerns that some 
of the regulations were onerous.  A number of stakeholders 
in the pensions industry remain concerned about the high 
costs associated with regulation and the amount of power 
vested in the hands of the regulator, the Financial 
Services Commission (FSC).  The GOJ is also disturbed 
about the lack of consensus on vesting and portability of 
pension rights and has signaled its intention to pursue 
these issues in a second phase of reforms.  Despite these 
concerns, this should bring order and security to 
retirement savings, while providing a substantial pool of 
funds for long-term investment.  End summary. 
 
---------- 
Background 
---------- 
 
¶2.  Nearly two years after its passage in the Lower House 
of Parliament, on March 19 the Jamaican Senate finally 
approved the controversial Pensions (Superannuation Funds 
and Retirement Schemes) Act, 2004, paving the way for the 
Financial Services Commission (FSC) to become the 
regulator of pension funds and schemes in Jamaica.  The 
process to develop pensions legislation for the private 
sector commenced almost ten years ago, but was largely 
stymied by resistance from trade unions and some industry 
players. 
 
¶3.  Prior to the passage of the act, pension legislation 
was mainly found in the Income Tax Act of 1954, although 
the Income Tax DepartQnt did not have the legal authority 
to supervise the industry.  The Act is therefore an 
attempt by the GOJ to reform the pension system, ensuring 
that a proper legislative and regulatory framework is 
instituted to secure the interests of pensioners in the 
over 1,500 registered pension schemes in Jamaica.  This is 
particularly important given the meltdown of the financial 
sector in the 1990s which reflected, inter alia, the 
imprudent management of the country's pension funds. 
 
¶4.  Under the new act, all approved pension funds and 
schemes must be registered with the FSC.  Likewise, all 
managers and administrators of pension funds must be 
licensed and all trustees must be registered.  The 
regulator will also have the power to monitor the 
operations of the industry as well as demand the 
disclosure of information to the agency and fund members. 
Additionally, the legislation includes investment limits, 
and allows self-employed persons and persons in non- 
pensionable jobs to save for retirement. 
 
------- 
Dissent 
------- 
 
¶5.  Trade unions are opposed to the issues of vesting and 
portability, contending that persons should have the 
option to reclaim their contribution refunds, should they 
so desire.  Currently, persons can opt for a refund of 
their mandatory contributions in the event that they leave 
their employment for another opportunity.  It concerns the 
GOJ, however, that - once obtained - these "refunds" are 
generally used for consumption purposes, leaving many 
retirees without sufficient resources for retirement. 
 
¶6.  Industry players, on the other hand, dislike the 
supporting regulations to the Act due to: (1) the costs 
associated with bringing the industry in line with the 
requirements of the act and regulations; (2) the perceived 
burden of compliance; and, (3) legal questions surrounding 
offences and penalties, particularly the subjection of 
trustees to criminal prosecution.  It was these concerns 
that prompted the Senate to send the act and regulations 
to a select committee for review. 
 
¶7.  Patrick Lynch, Chairman of the Gordon "Butch" Stewart 
group of companies pension scheme, one of the largest in 
the country, has estimated that pensioners will lose some 
 
USD 2.3 million of the approximately USD 2.3 billion under 
management annually.  Lynch has also reiterated his strong 
objection to the FSC being given control over private 
pension funds and retirement schemes, including the 
authority to refuse the dissolution of a fund or scheme 
even if the trustees agreed to do so. 
 
¶8.  William McConnell of the Lascelles DeMercado Group 
(and prominent member of the Private Sector Organization 
of Jamaica) argued that regulatory fees amount to a new 
"tax" on retirees.  Some detractors also argue that the 
regulations impose costs that could wipe out a number of 
the smaller pension schemes.  However, Minister of Finance 
Omar Davies and Executive Director of the FSC Brian Wynter 
have countered by suggesting that the policy of levying 
charges to cover the cost of regulation is universally 
accepted.  Davies said the GOJ'S sole interest in the 
matter is the protection of the savings of contributors 
and the treasury would not benefit from the passage of the 
legislation. 
 
----------------------------- 
GOJ Concerns Left Unaddressed 
----------------------------- 
 
¶9.  Despite trade union pressure, the GOJ wished to 
include vesting and portability of pension rights as part 
of the reformed pension landscape.  These rights are 
expected to ensure that persons are more prepared for 
retirement and would prevent them from claiming any refund 
of their contributions before retirement.  While GOJ 
officials and other industry players agreed that vesting 
and portability rights were necessary, trade unions 
insisted that persons should be allowed to claim for 
refunds.  With the deadlock stalling the reform process, 
the GOJ eventually decided to postpone the issue, but 
signaled its desire to pursue the issue in a second phase 
of reforms.  In fact, Davies has announced his intention 
to establish a task force comprising representatives of 
the various stakeholders as well as FSC officials to 
consider this and other measures. 
 
------- 
Comment 
------- 
 
¶10.  The approval of the Pensions Act will add an 
important layer of regulation to the financial sector, 
bringing the country's regulatory framework closer to 
international standards.  This is particularly important 
given that the imprudent management of pension funds was 
one of the underlying reasons for the mid-1990s financial 
sector crisis.  The improved regulations intend to provide 
greater protection for retirement savings in a country 
with a limited social safety net.  The reform process is 
therefore likely to bring some order to the way that 
pension funds of approximately USD 2.3 billion are 
invested.  It also provides a significant pool of long- 
term savings, given Jamaica's relatively young population, 
for investment in long-term projects.  Already, pension 
funds are looking forward to the possibility of investing 
in infrastructural projects like toll roads, which are 
turning out to be relatively lucrative investments. 
Nevertheless, real concerns remain, chief among them the 
costs associated with meeting the regulations and the 
impact of the new regulations on small funds. 
 
¶11.  Comment (cont'd):  While the cost of regulation is 
not a tax on the industry, it could hurt some funds, 
especially in a low interest rate, high inflation 
environment.  Small funds could find it difficult to 
comply with some of the regulations and might be forced to 
dissolve.  The issues of vesting and the portability of 
pensions (to ensure that persons are more adequately 
prepared for retirement) cannot be overstated, and one can 
expect a second phase of reform by the GOJ to be imminent. 
End comment. 
 
JOHNSON