Jamaicans have invested in different saving arrangements for life after retirement, including superannuation funds which are employer funded pension arrangements and retirement schemes which are provided by financial institutions. With different areas of the economy being negatively affected by the COVID 19 pandemic, some of us might be wondering if our savings for retirement are safe. Others of us might not care so much about life after retirement anymore, and might want to scale back on how much we are saving for the future, to ensure that we survive the present. Both are concerns that have been or are being considered in the making of laws that regulate the pensions industry.
The Pensions (Superannuation Funds and Retirement Schemes) (Investment) Regulations (the “Regulations”) direct how the assets of a superannuation fund or retirement scheme may be invested. The Regulations’ provisions are aimed at reducing the probability of such assets being lost as a result of risky investments. As such, before investing the assets of a fund or scheme, trustees are required to prepare a written statement of investment policies and principles. This written statement is to include financial risks to which the fund or scheme is exposed, and is to be submitted to the Financial Services Commission (the “FSC”). The FSC may deem a proposed investment ineligible for acquisition if it is in breach of the provisions of the Regulations.
Subject to exceptions, Regulation 16(1) for example, includes that the assets of a fund or scheme must not be invested to hold or acquire any combination of investments in, or loans upon, the security of the obligations, property, and securities of any one person or associate of that person, exceeding ten per cent of the fair value of the assets of that fund or scheme. Regulations 21 and 24 add that the assets of a fund or scheme may be invested in securities or obligations of the Government of Jamaica or of the governments of recognized jurisdictions, and in ordinary shares listed on a recognized stock exchange of Jamaica or a recognized jurisdiction. These investments are generally not very risky because of laws that guide the financial operations of and/or impose minimum performance standards on governments and publicly listed companies. Private companies, however, tend to be subject to less regulations, and before amendments made in 2019, trustees were not allowed to invest pension fund or scheme assets in the ordinary shares of a private company.
With the introduction of Regulation 24A in 2019 amendments to the Regulations, the assets of a fund or scheme may be invested in equities and debt securities of a private company if, inter alia, the private company is incorporated under the Companies Act, and the total amount so invested is no more than five percent of the fair value of the assets of the fund or scheme. The requirement that the private company must be incorporated under the Companies Act appears to mean that Regulation 24A prohibits investments in private companies that are not incorporated in Jamaica.
The provisions that are aimed at preventing the investment of all the assets of a fund or scheme in one entity, decrease the probability that instances such as those encountered during the pandemic, where productivity is reduced in certain sectors and the value of certain stocks and bonds decrease, will result in a fund or scheme losing all its assets. Also, with the reopening of the entertainment industry and the improvement of the tourism industry, the economy appears to be improving gradually. Of course, future developments are subject to what COVID-19 decides to do next, and the existence of improvements does not mean the absence of hardship.
Understanding that these are trying times, the relevant stakeholders have been considering amendments to the Pensions Act and accompanying regulations to allow for arrangements such as a “contribution holiday”. This could include a temporary suspension of contributions by members or sponsors to a fund or scheme during a pandemic or other national emergency, where the fund meets the prescribed minimum funding and solvency requirements and has a surplus. The participants of funds and schemes may also be allowed to take a refund of up to a maximum of twenty per cent of the accrued benefit in circumstances of financial hardship. That could come in handy for persons who are struggling to make ends meet and would like to start reaping the fruits of their labour, that the laws aimed at securing fund and scheme assets for the future keep out of their reach until retirement. The flip side to that however, is the reality that persons might end up saving less for retirement and ultimately regretting that decision when they retire. In any event, those provisions are still at the stage of being discussed and do not form part of the law as it stands.
The pandemic has caused some uncertainty in the economy, but the regulations governing superannuation funds and retirement schemes provide some assurance that our investments in the future we hope to see, can be sustained despite financial challenges.
Kimberley Brown is an Associate at Myers, Fletcher & Gordon, and is a member of the firm’s Commercial Department. She may be contacted at kimberley.brown@mfg.com.jm. This article is for general information purposes only and does not constitute legal advice.
