Editorial | Mr Charles’ pension task

A month on, Pearnel Charles Jr is still relatively new in his job as the labour and social security minister.

But in the event he did not know, there is no time for a honeymoon. And not only because of the labour matters he has already had to attend to. As Mr Charles was reminded in a report in this newspaper on Tuesday, Jamaica is facing a burgeoning old-age and pension crisis that demands his urgent intervention.

In that regard, Mr Charles, as we urged his predecessor, Karl Samuda, ought to be aggressive and creative about solutions, including seeking partnerships with the private sector, as has been suggested by Dania Palmer, a senior investment market researcher.

Jamaica was never in a good place on pensions or in having cushions for its elderly population. Largely, children were expected to look after their parents and grandparents. That, in general, continues to be the case. The problem is that grey Jamaicans, people over 60, nearly 14 per cent of the population, are the fastest-growing segment of the island’s demographics. They are heading into old age and retirement mostly without pensions, and with the prospect, over time, of too few younger people to carry the burden.

Indeed, between 2017 and 2021 Jamaica’s population grew by a minuscule 0.39 per cent.

INCOME REPLACEMENT

That more of the population is growing is not of itself bad. The problem is what is happening on the flipside. While people are living longer, fewer children are being born.

So while, for now, the working age (14-65 years) population remains strong, on current trends there will not be enough young people to replace this batch when they become old.

“The dependent elderly segment of the population (65+ years) remained constant at 9.6 per cent … of the total population,” the Planning Institute of Jamaica (PIOJ) noted in its 2021 Economic and Social Survey. “These cohorts of the population are expected to increase substantially as per population projections up to 2050.”

And as the PIOJ pointed out, the higher the dependency ratio (old people and children as proportion of the working-age population) “the greater the burden to support and provide the social services needed by children and by older persons, who are often economically dependent”.

That problem is exacerbated by the relatively small numbers of Jamaicans who are covered by pension schemes. At the end of 2022, according to the island’s Financial Services Commission, only 143,000 people – a mere 11.2 per cent of the employed labour force – were members of private pension schemes. Perhaps another half a million – most likely including all who are covered by private funds – are part of the government’s National Insurance Scheme (NIS), whose life, after a series of reforms, has been extended by 15 years, to 2050, its actuaries say.

However, income replacement by the NIS – which is funded by a three per cent tax on workers and matched by the employers – is mostly in the low double digits as a proportion of people’s pre-retirement salaries.

Nonetheless, for many people the NIS, of which anyone who is over 18 and in a job is legally obligated to join, is a critical lifeline in their old age.

The scheme, according to government officials, has significantly increased its enrolment in recent years – but not nearly fast enough. Which is now the challenge for Mr Charles.

The informality of large swathes of Jamaica’s economy and its labour market does not make it easy for people to subscribe to the scheme. Which is why we previously urged Mr Samuda to be innovative in getting Jamaicans to sign up – including taking NIS where people work and congregate, such as on construction sites and in markets, and even in bars and entertainment events. Workers, including the self-employed, should be able to enrol on spot.

BROADER EXPANSION

Further, it ought to be possible for self-employed and informally employed people, having gained their unique NIS numbers, to make contributions on their accounts at any time, via their banks or using mobile apps.

Mr Palmer, the research manager at JN Fund Managers, suggested in this newspaper that the government leverage the know-how and resources of the private sector for a broader expansion of pensions.

“There is room for collaboration in policy, which can lead to more effective and comprehensive solutions and more relevant legal and regulatory requirements,” Mr Palmer said.

Among the proposed solutions is one from the Pensions Industry Association of Jamaica (PIAJ) that all employed persons, who are not already part of pension plans, be automatically enrolled in an approved retirement scheme. While it would not be mandatory that they stay, judging from jurisdictions where this approach has been used, the PIAJ believed that most would remain in the schemes.

At least Minister Charles should initiate a full review of this and other ideas to expand Jamaica’s pension cover. The matter is urgent.