- The need for the reform was borne out of recognition that the existing system had become fiscally unsustainable thus rendering it unaffordable.
- Currently, public servants are awarded pensions through an unfunded Defined Benefit system.
- in the new system, the pension benefits will be computed using an average of the final five years salary.
The White Paper on the reform of the public sector pension system was tabled in the House of Representatives on December 17.
The document was tabled by Minister with responsibility for Public Service, Hon. Horace Dalley.
According to the Paper, the need for the reform was borne out of recognition that the existing system had become fiscally unsustainable thus rendering it unaffordable.
Currently, public servants such as police, teachers and central government workers are awarded pensions through an unfunded Defined Benefit system. These benefits are determined by a prescribed formula.
A Joint Select Committee of Parliament was established where stakeholders and interested parties were able to make comments and voice their concerns on the recommendations of the Green Paper.
“Policy outlined in this White Paper therefore presents a position that accord with some aspects of the Report that was tabled in the Parliament but recognizes that the current fiscal environment does not allow funding of past liabilities. The Paper has also incorporated the proposed changes that will make the administration of the pension system more efficient,” the document said.
Under the reformed system, all workers will be required to contribute five per cent of their salary toward their pension. Also, all workers will begin paying contributions at a date to be determined by Cabinet.
“The Government will finance the difference between the total contributions and the pension benefits as the need arises from the Consolidated Fund. This will be necessary as the Government will not be able to fund past liabilities to the extent of $17 billion per annum and make a contribution of 3½ per cent annually, as proposed in the Report of the Joint Select Committee,” the Paper stated.
The White Paper further noted that in the new system, the pension benefits will be computed using an average of the final five years salary. Pension benefits are presently computed on final salary.
The existing retirement age of 60 will be gradually increased to 65 years by one year each year starting in April 2016. Also, on retirement, workers will be given the option to receive one quarter of their pension benefits with a reduced pension or full pension benefits.
In keeping with the Government’s commitment to the International Monetary Fund (IMF) under Jamaica’s Economic and Financial Policies, the scheduled implementation date of the reformed public sector pension system will be April 1, 2016.