Jamaica’s Public Pension Under-funded

Go Lean Commentary

“Stealing from Peter to pay Paul” – Old Adage.

This above statement does not need to be explained; every reader fully understands and appreciates the meaning of this expression. It reflects a practice in financial management when revenue resources are out-paced by financial obligations. This is when reorganization becomes necessary. In fact, the publishers of the book Go Lean … Caribbean, SFE Foundation, is well suited to comment on these practices, as their charter is portfolio reorganizations for individuals, families and institutions.

On Page 8 of the book, the detailed profile of the foundation features influences from a noted American Economist Paul Romer by listing two of his famous quotations:

1. “A crisis is a terrible thing to waste”
2. “Economic growth occurs whenever people take resources and re-arrange them in ways that are more valuable

The foregoing article relates a need in Jamaica to reorganize the pension program for retired civil servants. The system is broken! This subject of retirement is therefore important for retired people (old) and active workers (young), as every civil servant is either retired or want to be … someday:

Title: Public pension reform programme won’t work – Unfunded obligations at J$680B and growing
Sub-Title: Public-sector employees now enjoy very generous pension benefits that Government pays from current revenue.
By: A.C. Countz, Guest Columnist

s Public Pension Under-funded - Photo 2The Jamaican Government does not put aside the necessary funds to finance pension obligations as they are incurred, as would be done in a private-sector scheme. It has a planned ‘reform’ that will further increase the pension fund deficit. This is irresponsible.

If past pension benefits were funded, as in most private-sector firms, that is, in a special segregated fund with an adequate balance to pay for the pension obligations relating to past service, then the Government (taxpayers) would have to find, right now, about J$680 billion to put into this fund.

Additionally, Government would have to put in 5.0 percent of pensionable annual salary for the public service in years going forward.

Currently, there are many members of the public sector, those of pensionable age, who receive pensions totaling J$23 billion per annum, while employee contributions amount to J$4.4 billion per annum.

In other words, Government is paying out annually almost J$19 billion more in pensions than incoming employee contributions.

Government now plans to reform the pension plan by April Fool’s Day 2016.

The reform hopes to achieve:

1. Unification of all the different legislations that deal with these pensions and, as far as possible, standardise pensions terms across the whole public sector;

2. A defined benefit scheme would continue, though moderated;

3. An increase in retirement age to 65, gradually for existing employees – apparently lower retirement age for soldiers, policemen and maybe national and local politicians;

4. Calculate pensions based on average last five year’s service (calculation now based on final salary);

5. Calculate pensions based on 1.8 percent of average last five year’s service for every year served. There would be transitional arrangements whereby persons over 54 years old at the start of reform would get a higher percentage of between 2.0 per cent and 2.2 percent.

6. Pensions would not be indexed although the Government might increase pensions if a ‘surplus’ in the scheme is produced – as there is no segregated fund, one cannot imagine how this surplus is to be calculated; and

7. A lump sum of 25 percent of pension benefits payable on retirement and ongoing pension reduced – presumably the reduction will be actuarially calculated.

The Government proposals in the White Paper are faulty and, if implemented, will not make the public-sector pension plan affordable in the future. It is a Band-Aid when strong reform is needed.

The finances of the country are in a disastrous, although possibly better managed, condition.

Here are some suggestions for pension reform that are more appropriate than those in the White Paper:

1. Terminate the existing defined benefit scheme. Honour past service with existing benefits;

2. Commence a defined contribution scheme at once for ALL public servants, including statutory bodies and executive agencies. All future service for existing employees and all new employees to go into the defined contribution scheme. All employees to start paying a basic contribution of 5.0 per cent of pensionable salaries – these should be defined to exclude non-salary benefits. Employees should be encouraged to make further voluntary contributions to become entitled to a larger pension on retirement. Government to seek a waiver from IMF to allow them to fund the employer’s contribution of 5.0 per cent per annum from now;

3. Defined Contribution (DC) scheme to be operated in a properly managed and transparent segregated fund;

4. Government should face the issue squarely and acknowledge that they have debts, not accounted for in the national debt, of say J$700 billion representing the present day value of unfunded obligations. This amount should be properly accounted for in the national debt and arrangements made to fund it;

5. It is irresponsible for Government to reform the public sector pension scheme in a way that is certain to continue to increase the size of its unfunded obligations. Proper reform will be difficult to deal with, especially coinciding with the end of the pay freeze, but to do otherwise is once again not to face reality.

The basis of any reform must be to halt the growth of the unfunded obligation of the scheme in respect of past service and to fund on a current basis future service obligations.

Jamaica is badly served if EPOC, civil society and private sector organisations – to say nothing about the IMF – allow this pusillanimous approach to be followed.

Government reform must at a minimum stop the growth in the unfunded obligations of the scheme and include a plan to fund what is due for past service over a committed period of time.

A defined contribution scheme should be introduced for all future service.

This will be impossible for government to do unless there is public pressure on them to counterbalance the civil service lobby.

This column reviews the audited and in-house accounts and reports of companies and entities owned or influenced by Government.
Jamaica Gleaner Newspaper Online Site (Posted 08/20/2014; retrieved 03/06/2014) –

s Public Pension Under-funded - Photo 1

The book Go Lean … Caribbean serves as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU). The technocratic CU is proffered to provide economic, security and economic security solutions for the 30 Caribbean member-states, including Jamaica. This mandate is important for retirement planning for current and future generations. This is detailed early on in the book’s Declaration of Interdependence, as follows on Page 13:

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

The roadmap posits that retirement is a community issue, and that the mandate for the CU to manage economic security issues must encompass retirement planning as well. Applying lessons from the US and other western democracies, the key to technocratic retirement planning is the time-value-of-money; the ability to invest small amounts when young so that compounded returns can grow exponentially to benefit the saver when they are old; this is depicted in the VIDEO below. This is based on one assumption, that there is a capital/security market to facilitate the investment. This is where the Caribbean status quo is most lacking.

Without question, the role model for Caribbean capital/security markets would be New York City’s Wall Street. This ‘metonym’ refers to more than just the ‘street’, but rather the entire eco-system for financial investing in the US. While, the Caribbean region cannot rival Wall Street (for liquidity), we can reorganize and optimize the existing financial markets  – the current 9 Stock Exchanges – with the introduction of the Caribbean Dollar, managed by a technocratic Caribbean Central Bank.

Liquidity refers to the availability of money, therefore the Go Lean roadmap portrays the need for public messaging to encourage more savings/investments. This messaging pronounces the need for Caribbean stakeholders to “steal from Peter to pay Paul”, where “Paul” is their future selves; see VIDEO below. The book describes this “deferred gratification” as a community ethos that is required to forge permanent change; this is advantageous for the entire Caribbean, and individual member-states like Jamaica.

There are some realities for Jamaica that must not be ignored. This country has experienced numerous currency devaluations and hyper-inflation episodes that has undermined the good habit of savings. These realities were detailed in the Go Lean book (Pages 239 & 297), depicting the “misery index” that Jamaicans had to endure. No wonder the societal abandonment rate in Jamaica is among the highest in the region. A previous Go Lean blog/commentary listed an abandonment rate of 85% among the college educated population.

The Go Lean roadmap addresses pension reorganization by first rebooting the region’s currency, economic and governing engines.

Related subjects on currency, economic, and governing dysfunction in the region that may affect the management of pensions have been previously blogged by the Go Lean promoters, as sampled here:

Inflation Matters – A factor in ‘Pensions’
Canadian Retirees – Florida’s Snowbirds Chilly Welcome
US Federal Reserve releases transcripts from 2008 meetings regarding mitigations of the financial crisis
Dominica demonstrates Caribbean liquidity by raising EC$20 million on regional securities market
Time Value of Money – basis for retirement planning
Book Review: ‘Wrong – Nine Economic Policy Disasters and What We Can Learn…’
What’s Holding Back Jamaica’s Reforms

The purpose of the Go Lean roadmap is to turn-around the downward trends in the Caribbean today, to reverse course and elevate Caribbean society. The Go Lean roadmap, applying lessons from the currency, economic and governing dysfunction of past years, has envisioned the CU with the following prime directives:

  • Optimization of the economic engines in order to grow the regional economy to $800 Billion & create 2.2 million new jobs.
  • Establishment of a security apparatus to protect the resultant economic engines.
  • Improve Caribbean governance to support these engines with Executive branch facilitations & legislative oversight.

The Go Lean book details a series of assessments, community ethos, strategies, tactics, implementations and advocacies to optimize financial/retirement planning and performance:

Assessment – Caribbean Single Market & Economy – need for integration Page 15
Assessment – The Greece of the Caribbean – dysfunctional debt policies Page 18
Community Ethos – Deferred Gratification Page 21
Community Ethos – Consequences of Choices Lie in the Future Page 21
Community Ethos – Money Multiplier – Control of Local/Regional Currency Page 22
Community Ethos – Return on Investments Page 24
Community Ethos – Ways to Impact the Future Page 26
Community Ethos – Ways to Impact the Greater Good Page 37
Implementation – Ways to Better Manage Debt Page 114
Implementation – Reasons to Repatriate Page 118
Planning – Lessons from 2008 Page 136
Advocacy – Ways to Control Inflation Page 153
Advocacy – Ways to Better Manage Foreign Exchange Page 154
Advocacy – Ways to Manage Federal Civil Service – Pension -vs- 401K Page 173
Advocacy – Reforms for Banking Regulations Page 199
Advocacy – Ways to Impact Wall Street Page 200
Advocacy – Ways to Improve Elder-Care Page 225
Advocacy – Ways to Impact Retirement Page 231
Advocacy – Ways to Re-boot Jamaica Page 239
Appendix – Jamaica’s International Perception Page 297
Appendix – Lessons Learned – Floating a Currency Page 316
Appendix – Controlling Inflation – Technical Details Page 318

In most Caribbean countries, the largest employer is the government. Therefore public-sector employees are the largest group of workers. The foregoing news article was written as an audit-analysis to an audience of two, the Responsible Government Ministers for the Jamaican public-sector employees’ pension. The article specifically identified them as:

Dr. Peter Phillips – Ministry of Finance and Planning
Derrick Kellier – Ministry of Labour and Social Security

The Go Lean roadmap, on the other hand, was written for a different audience, all Caribbean stakeholders: citizens, Diaspora, government officials, civil servants, retirees and the youth. This is an empowerment plan for most aspects of Caribbean life, in fact there are 144 different advocacies in the Go Lean book. This is heavy-lifting; an investment in the people of the Caribbean for the elevation of the Caribbean.

The requisite investment of the resources (time, talent, treasuries) for this goal to elevate society may be too big for any one Caribbean member-state alone. Rather, shifting the responsibility to a region-wide, professionally-managed, deputized technocracy will result in “greater” production and greater accountability. Retirement planning and pensions are not optional, they need “greater” production and “greater” accountability; they need a “greater” return on investment – see VIDEO below on the slow-but-steady basics of “compound” investing.

Retirement planning for the Caribbean needs to “Go Lean“.

All Caribbean stakeholders are hereby urged to lean-in to this roadmap to make our Caribbean homeland a better place to live, work, and play.

Download the book Go Lean … Caribbean – now!


Video: Retirement Basics: The Power of Compounding – http://youtu.be/immQX0RKFY0

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