With Jamaicans living 20-25 years beyond the retirement age and a low rate of retirement planning, financing retirement is becoming a looming issue. Is mandatory pensions savings the answer?

1. SAVINGS & MORTGAGES | WEALTH MANAGEMENT | PENSIONS | MONEY TRANSFERS | REAL ESTATE SERVICES | GENERAL INSURANCE
Is Mandatory
Pensions the
Answer?
Rezworth Burchenson
Managing Director
Prime Asset Management Limited
Inaugural Economic Forum

2. 60%
25 years
What Do These Statistics Have in Common?

3. There is a fast-aging population
many without making any
preparation for retirement
Older persons are living up to 25
years past their retirement age.
A Looming Crisis?

4. 60 % of persons have no pensions and
have never contributed to NIS
This includes large numbers of private
sector employees
 18% of whom contribute to a pension
The Jamaican Situation

5. The 2011 National Population Census indicated that
older persons are living 20 to 25 years beyond the
retirement age of 60 (for women) and 65 (for men).
The 60-and-over age group increased by 9% during
the period 2001-2011 and the size of the above-80
age sub-group increased by 34%.
In 2012 close to 350,000 persons aged 45-59 were
projected to retire within 15 years
The Jamaican Situation cont’d

6. "The aging of the Jamaican population raises
economic questions, especially about how older
persons will finance longer lives," stated Dr Denise
Eldemire Shearer, Director of the Mona Ageing and
Wellness Centre, in a Sunday Observer report on
June 28, 2015.
Economic Questions

7. As we are faced with the looming crisis of no
pension arrangement for the majority of the working
population,
Let us the Chilean experience and its derivatives in
other Latin American countries starting in 1981.
The Question of Pension Reform?

8. The most widely recognized mandatory pension
reform was implemented in 1981 in Chile.
It has been largely successful and now forms the
basis for subsequent reform in other countries
The Chilean Model

9. Conditions Prior to
Pension Reform in Chile
Poorly managed, defined benefit,
government/state social institution run pay-
as-you-go (PAYG) pension schemes:
 Unfair distribution of benefits across income
groups
 Contributions and benefits frequently adjusted by
government for fiscal purposes
 High and unstable inflation caused major
changes in real pension benefits
 Poor investment of funds

10. Conditions Prior to
Pension Reform in Chile
Doubt of long-term
financial
sustainability of
pension plans
Low coverage ratio

11. Details of Chilean Reform
System Affected Steps taken
Original system: Mandatory pillar
(reform before/during adoption of new
system)
Retirement age increased
Unified pension indexation
Discontinued early retirement
programmes and years-of-service based
pension benefits
Gradually phased out
New system: Mandatory first pillar
Complementary social assistance for non-
participants
Means-tested assistance pension
Complementary minimum pension guarantee
for second pillar participants
Means-tested minimum pension guarantee
Mandatory second pillar
Contribution based second pillar Defined contribution IRAs managed by
private fund management and invesTment
companies
Exempted sectors Military personnel; self-employed persons
Contribution collection Decentralized

12. Estimated Saving and Growth Effects of Pension Reform in Chile
Estimated post-reform growth effects
TFP Growth increase due to pension reform: 1.0-2.9%
TFP growth from financial development 0.4-1.1%
High investment due to financial development 0.5-0.6%
High employment growth 0-1.1%
Estimated post-reform saving and growth effects
Total increase in national saving ratio to GDP
from 1961-74 to 1990-97
12.2%
of which due to pension reform: 3.8%
Total increase in annual GDP growth rate
from 1961-74 to 1990-97
3.4%
of which due to pension reform: 0.9%
Higher saving rate 0.5%
Higher capital productivity level 0.1%
Higher TFP growth 0.2%
Growth during feedback 0.1%

13. Real Average Growth of the GDP
(1980 – 2001)
4.63
Estimated effects of the reform on GDP growth
Saving and Investment 0.13
Labour markets:
Increase in employment 0.07
Increase in productivity 0.03
Financial development and TFP 0.20
Total* 0.49
Total Estimated Effects of Pension Reform on GDP
Growth (%)
The total is calculated as a compound rate and is therefore not
equivalent to the sum of the individual effects.
Source: Corbo and Schmidt-Hebbel, Macroeconomic Effects of Pension Reform in Chile.

14. Subsequent Reforms in Similar Countries
Eight other Latin American countries with similar
challenges and PAYG pension schemes
implemented pension reforms based on the
Chilean Model by 1998.
The reforms put in place differed in these
countries in response to their unique political
and financial situations.
The different reforms can be grouped into four
types.

15. Reforms Implemented by Country
Country Type Of Reform
Mexico Radical reform (PAYG scheme
closed
immediately)
Bolivia Radical reform (PAYG scheme
closed
immediately)
Chile Radical reform (PAYG scheme
closed
gradually)
Colombia Either/or mixed system
Peru Either/or mixed system
Uruguay Complementary mixed system
(income based)
Argentina Complementary mixed system

16. Selected Countries: Pension Fund Assets and Capital
Markets
(% of GDP)

17. • Reform of NIS:
• RR greater at lower income levels
• Large underground economy
• Percentage contribution…..phased
• Challenging economy…..impact on disposable
income
• Support of key stakeholders
• Trust – centralized or de-centralized
• Capacity in the private sector
Considerations

18. • In 12 years, approx. 350,000 persons will retire
• Many will not have a Pension
• Looming crisis which requires urgent attention
• Presented one possible approach adopted by
other countries
• Let us start the discussion now
In Conclusion