Consultant actuary Constance Hall, an expert in the field of pensions, is advocating major changes to the current national insurance scheme (NIS), starting with a doubling of the size of contributions, to strengthen and build a more sustainable pool of retirement funds.
Hall who works with the Jamaican office of Eckler, a Canadian firm which offers actuarial and consulting services, says NIS contributions should be increased to 5.0 per cent of pay for employees and a similar five per cent by the employer.
At the same time, she says the salary cap to which NIS applies, which now stands at J$1 million, should be removed or significantly increased — maybe even doubled.
"If the cap is increased, rather than removed, then stipulate that the increased cap rise with inflation each year," said Hall in a presentation at the 4th annual PSOJ/Prime Asset Management pension seminar on last Thursday in Kingston.
Contribution to NIS, which is mandatory for all wage earners, currently stands at two and a half per cent of gross salary.
The employer is mandated to pay a matching two and a half per cent up to a maximum salary of J$1 million per annum.
But this, the pension experts contends, is not sufficient to provide a good standard of living upon retirement.
While the NIS is complemented by some private companies setting up superannuation funds, this is not so for public sector workers.
Discussions are now ongoing for a reform of the public-sector pension system, with a Green Paper proposing the establishment of a defined contribution fund recently tabled in parliament.
With that proposal both employer and employee will contribute five per cent to the scheme.
According to data presented by Hall, obtained from Financial Services Commission and Statistical Institute of Jamaica, only about 160,000 of the 1.1 million workforce participate in occupational schemes and only 400,000 persons are contributing to NIS.
Under the NIS, the maximum benefit for someone who started contributing from inception in 1966, and was always contributing the maximum up to retirement in 2010, is approximately J$16,000 per month.
The minimum benefit would be J$6,000 per month.
So while the benefits for most participants are inadequate, Hall argues, it still provides a foundation on which to build.
"The structure is already in place and it has all the elements for successful performance," she said.
Hall agrees with a recommendation in the Green Paper that the need to raise the contribution rate be sold to public-sector workers through an education campaign.
She said that because higher contributions are likely to be unpopular, some level of education will be required.
However, she opposes the position that the replacement ratio under the NIS is too low.
The replacement ratio is the percentage of working income that an individual needs to maintain the same standard of living in retirement.
"The replacement ratio is good for low- income workers and low for higher income workers. This system includes an element of redistribution of income which is not envisioned under the Government's pension system or occupational schemes," she said.
"It is also important to note that there is a cap on the wages on which NIS contributions are paid. This constrains the growth in the pensions," the actuary said.