The World Bank has proposed a pension model for Jamaica, which includes a gradual increase in the retirement age; the use of the average final five years instead of the final salary as a base for calculating benefits; and the introduction of automatic indexation to preserve the value of the pension throughout retirement.
Details of the model were recently submitted by a World Bank technical team to the Joint Select Committee of Parliament currently discussing the Green Paper on Public Sector Pension Reform for Jamaica.
According to the World Bank technocrats, the World Bank model is based on a fine-tuned “actuarial model that incorporates simulations on the results of several reform options for pension systems costs, finances and level of benefits. This model has been applied in more than 80 countries worldwide, and is currently being used in the case of Jamaica."
The Bank’s Senior Social Protection Economist, Gonzalo Reyes, emphasised that the modification in the pension regime for Jamaica’s public sector employees is seen as “a crucial component of government policy, in line with increasing the efficiency of the public sector, rationalising government spending and reducing long-term public debt."
The World Bank team, headed by country representative, Giorgio Valentini, recommends the inclusion of key elements that should enhance the chances of a successful implementation process.
These proposed measures are to be underpinned by an implementation calendar to begin as soon as the “institutional capacity to administer the new regime is in place."
The World Bank recommendations include: an increase in the retirement age, gradually for current employees who are 55 and younger, using the average final five years instead of the final salary as a base for calculating benefits; a reduction in the rate at which benefits increase for each future year of service; maintaining accrued benefits for past service and current pensioners; introducing automatic indexation to preserve the value of the pension throughout retirement; and the use of a gradual approach to minimise the impact on employees who are closer to retirement.
Mr. Valentini said the presentation was part of a package of technical support from the World Bank towards the development of a pension reform proposal with financial resources through a social protection loan.
According to the World Bank, the Ministry of Finance was able to produce the Green Paper with the assistance of the international lending agency, availing itself of direct comparisons with other proposals for, and results of other similar processes elsewhere in the world.
The team said the outcome will be a “fully informed” process as was the case in the preparation of the Green Paper.
The World Bank team included the Washington-based social protection specialist, Tatyana Bogomolova; Senior Social Protection Economist, Gonzalo Reyes and Kingston-based country economist, Rohan Longmore.
They assured that the process leading to the policy document on pension reform in Jamaica will continue to benefit from ongoing consultations and technical support from the World Bank.
By Allan Brooks, JIS Senior Reporter