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Seaga backs pension reform
By Dennise Williams, Staff Reporter
Jamaica National Fund Managers (JNFM) held a pension fund seminar yesterday at the Hilton Hotel under the theme "The Impact of Governance and Investment Decisions on the Solvency and Sustainability of Pension Funds."
Former prime minister, Edward Seaga provided the opening address, which traced the history of the pension concept in Jamaica and proved the necessity of the modern pension system.
SEAGA
Traditionally, Jamaicans secured their old age in one of three ways - family, livestock or community.
Mr. Seaga began, "Everyone sets aside some of the assets accumulated during the early years. But there are ranges of different assets that are saved.
One extreme example of this is where people have many children. This is considered a wise investment because at least one child will honour their obligations to their elderly parents. But this is expensive because parents invest heavily in children with the hope of receiving a dividend.
The problem is that this carries awesome burdens in financial costs and social costs."
Of course, Mr. Seaga did point out that large families are on the decline in Jamaica. He noted that in 1960, the average number of children per woman was 5.4. And while the government has attempted to encourage replacement levels of two children per EdwardSeagaD20040702RB woman, by 2005, the average number is 2.5 children per woman.
Another traditional option Mr. Seaga described was livestock. "In situations where there are no children, older persons turn to their livestock which can be quickly disposed of for cash."
And the final alternative was barter. "Usually family members would take care of the inescapable costs of old age and death, but where no family exists, older persons will turn to someone in their community. The bargain is struck whereby if the young person takes care of the older person then the assets held would be transferred to them."
Now recognising the need for the government to take some form of responsibility for older persons, Mr. Seaga pointed to the National Insurance Fund (NIS) and Golden Age homes.
However, "in a modern society, the focus on preparing for retirement revolves around financial schemes. And so modern pensions are vital to individuals or groups as a reliable way to save themselves from future financial embarrassment."
And it is important that the government get involved in the regulation of pension funds because of the nature of investments that pensions funds place money with.
"Highways, bridges, airports and infrastructure works rely heavily on pension funding because of their long term repayment nature. And so these investments and the pension fund need to be properly regulated by law.
The act of one party entrusting their future benefit to a company or investment brokerage is an act of great confidence. A breach of that confidence would cause the system to collapse. Therefore, regulation is the highest form of protection from failure."
Again pointing to the government's involvement in the NIS, Mr. Seaga states, "The NIS has proven to be the most beneficial welfare system in the country. The National Investment Fund (NIF) which manages the funds of the NIS has $40 billion and 80,000 needy pensioners."
That said, Mr. Seaga turned from the government and pension fund responsibility to the individual. He lamented the decline in the national savings rate. "From a peak in the 1960s and 1980s, the slide in the last decade shows that Government must avoid economic stagnation decline to raise the level of savings above the benchmark of 20 per cent of gross domestic product. Legislation should keep in mind the need to encourage rather than discourage contribution."
Mr. Seaga closed with the suggestion of three measures to increase savings rates to pension schemes.
1 Increase the tax-free amount for pension savings to 20 per cent and adjust the income tax legislation to reflect this. It is currently $6,000 or 10 per cent of wages, which ever is less.
2. Make pension payments tax-free. Currently, pension payments are tax deferred as pensioners are taxed upon payments. This would increase the attractiveness of pension schemes.
3. There is a lack of sufficient long-term investment in the market. Government should create special deals with sweeteners or market-adjusted rates to encourage long-term investments.
By Dennise Williams, Staff Reporter
Jamaica National Fund Managers (JNFM) held a pension fund seminar yesterday at the Hilton Hotel under the theme "The Impact of Governance and Investment Decisions on the Solvency and Sustainability of Pension Funds."
Former prime minister, Edward Seaga provided the opening address, which traced the history of the pension concept in Jamaica and proved the necessity of the modern pension system.
SEAGA
Traditionally, Jamaicans secured their old age in one of three ways - family, livestock or community.
Mr. Seaga began, "Everyone sets aside some of the assets accumulated during the early years. But there are ranges of different assets that are saved.
One extreme example of this is where people have many children. This is considered a wise investment because at least one child will honour their obligations to their elderly parents. But this is expensive because parents invest heavily in children with the hope of receiving a dividend.
The problem is that this carries awesome burdens in financial costs and social costs."
Of course, Mr. Seaga did point out that large families are on the decline in Jamaica. He noted that in 1960, the average number of children per woman was 5.4. And while the government has attempted to encourage replacement levels of two children per EdwardSeagaD20040702RB woman, by 2005, the average number is 2.5 children per woman.
Another traditional option Mr. Seaga described was livestock. "In situations where there are no children, older persons turn to their livestock which can be quickly disposed of for cash."
And the final alternative was barter. "Usually family members would take care of the inescapable costs of old age and death, but where no family exists, older persons will turn to someone in their community. The bargain is struck whereby if the young person takes care of the older person then the assets held would be transferred to them."
Now recognising the need for the government to take some form of responsibility for older persons, Mr. Seaga pointed to the National Insurance Fund (NIS) and Golden Age homes.
However, "in a modern society, the focus on preparing for retirement revolves around financial schemes. And so modern pensions are vital to individuals or groups as a reliable way to save themselves from future financial embarrassment."
And it is important that the government get involved in the regulation of pension funds because of the nature of investments that pensions funds place money with.
"Highways, bridges, airports and infrastructure works rely heavily on pension funding because of their long term repayment nature. And so these investments and the pension fund need to be properly regulated by law.
The act of one party entrusting their future benefit to a company or investment brokerage is an act of great confidence. A breach of that confidence would cause the system to collapse. Therefore, regulation is the highest form of protection from failure."
Again pointing to the government's involvement in the NIS, Mr. Seaga states, "The NIS has proven to be the most beneficial welfare system in the country. The National Investment Fund (NIF) which manages the funds of the NIS has $40 billion and 80,000 needy pensioners."
That said, Mr. Seaga turned from the government and pension fund responsibility to the individual. He lamented the decline in the national savings rate. "From a peak in the 1960s and 1980s, the slide in the last decade shows that Government must avoid economic stagnation decline to raise the level of savings above the benchmark of 20 per cent of gross domestic product. Legislation should keep in mind the need to encourage rather than discourage contribution."
Mr. Seaga closed with the suggestion of three measures to increase savings rates to pension schemes.
1 Increase the tax-free amount for pension savings to 20 per cent and adjust the income tax legislation to reflect this. It is currently $6,000 or 10 per cent of wages, which ever is less.
2. Make pension payments tax-free. Currently, pension payments are tax deferred as pensioners are taxed upon payments. This would increase the attractiveness of pension schemes.
3. There is a lack of sufficient long-term investment in the market. Government should create special deals with sweeteners or market-adjusted rates to encourage long-term investments.