Is Pension Reform Coming to Jamaica?
Posted on 08/09/2020
Jamaica is celebrating another year of independence from the United Kingdom, which was first gained on August 6, 1962. Jamaican gold-medal sprinter Usain Bolt and others took to Twitter to celebrate. Jamaica calls itself the “heartbeat of the world,” with more visitors than residents. In 2019, 2.7 million visited by air and 1.6 million came by cruise ship. Jamaica’s tourism director Donovan White forecast a “strong year” in 2020 and the Jamaican Tourism Board promoted its television commercials showing visitors dancing to Bob Marley’s “Let’s Get Together and Feel Alright.” Optimism was running high as business interest increased leading into 2020, before coronavirus came on the scene. What was less well known was that Jamaica’s economy had been experiencing a dramatic turnaround, after decades of being a source of angst for most of its people.
In the 1990’s, unemployment reached 16%. Employment increases cut that number in half in the 2010’s, but inflation ticked 20%. Also in the 2010’s, the annual national debt took 54% of the country’s budget, or US$ 3.8 billion. Over a dozen loans from the International Monetary Fund (IMF) did little to jumpstart the country’s prospects and leaders in Jamaica complained that the IMF deals never achieved their goals. Finally, the IMF required Jamaica to freeze salaries for at least three years, increase taxes across the board, and privatize industry before it would release additional monies. Inflation was subdued, and pushed back down to 6%. Foreign investment increased. Luxury car makers, high end hotels, and tech giant Amazon moved in at 58 HWT Tech Park. Starbucks and Hilton Hotels were a few of the recognizable companies expanding their presence along major highways.
Jamaica’s GDP, at US$ 15.6 billion, now eclipses debt, at US$ 15 billion. The cost of living is still high. Jobs are plentiful, but are usually low paying, discouraging some from working. However, the overall mood has been one of optimism. Then COVID-19 hit. The country has over 900 cases, but few have died and locals are eager to get back to work. Cruise ship business has disappeared. Airlines are running limited service. Vacations have been postponed more often than cancelled, and resorts have been given the all-clear as “coronavirus compliant.” While trying to hang on to as much business as it can, Jamaica has become a target for critical western media, including The New Yorker. The New Yorker’s headline proclaimed: “Jamaica prioritizes tourism over public health.”
Pension Reforms
Retirement in Jamaica could historically begin at 55 or as early as age 50 with government approval. Pensioners pay an income tax of 25%. Jamaica is currently in the process of reorganizing its pension system. This is due to “increased longevity of pensioners” and “growth in the number of public sector employees” says the government. One of the major changes is an increase in the retirement age, to 65. Accrual rates have fallen to 1.8% for newer employees. They used to be 2.2%. The pension is administered by Guardian Group, a Caribbean financial insurer and services company.
With a population under 3 million, Jamaica’s pension is small. 3,000 people are currently on the rolls. The private sector adds additional options for locals, but The Financial Services Commission of Jamaica indicates that less than 20% of employed Jamaicans are covered by a private pension plan. The primary difficulty faced by Jamaicans, including skilled professionals, is purchasing a house. Between 500,000 and 1 million Jamaicans live in settlements that are technically considered illegal. Universal healthcare is not available in Jamaica, but government pensioners can buy into a healthcare plan. Jamaica is also overwhelmingly dependent on cash, with low buy-in for the banking sector. Over 20% of bank account holders do not make any deposits into their accounts. Even more, 65%, are paid in cash only. Financial institutions only have 30% of Jamaicans enrolled, with even fewer actively using banking services. This means that people and institutions lack access to credit. While 58% of Americans use credit cards, only 11% of Jamaicans use credit of any kind. The National Federal Inclusion Council has developed a strategy to move more Jamaicans onto the credit system, particularly farmers and potential homeowners. The Council hopes to lure venture capital to the country.
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