Proposed limits on pension investment worries fund managers
The Pension Funds Association of Jamaica (PFAJ) is objecting to limitations currently being proposed on Type 1 pooled funds by the Financial Services Commission (FSC).
Changes to regulations over these investment vehicles, through which more than one approved retirement schemes or pension fund can be grouped, may limit how much funds can be invested in related-party assets to 10 per cent.
It could also cap investments in foreign assets at 20 per cent of portfolios.
"We are not saying they should remove the limitations, but we think they should look at increasing it because as it is now, it's not practical," said Brian Frazer, director of the PFAJ at the company's seminar last Friday.
Currently, regulations in the Pension Act does not hold restrictions on investment amounts in the Type 1 Pooled Fund, according to the PFAJ. However, the FSC is seeking to align Jamaica's pension landscape with that of international standards.
Frazer said that the limitations could reduce total investments, especially in cases where the funds are being co-managed by two separate firms.
"If a pension fund has two portfolio managers at two different institutions, both companies will now become related parties and the fund will be restricted to 10 per cent in overall equities and fixed income," Frazer said.
Trustees may also find themselves personally liable for statutory breaches under the Pensions Act.
Civil penalties for breaches of provisions under the Act now see fines of up to $5 million for corporate trustees.
The proposed recommendation could see the FSC bringing a civil order up to seven years after a breach, which cannot be paid or reimbursed from the fund. Trustees could also bear the costs incurred by the FSC, including investigation costs.
"This recommend would likely be a deterent to individuals willing to serve as trustees because it effectively dilutes the standard indemnity protection that trustees have under the governing documents of the Trust, which is cause for great concern from the association," said Sanya Goffe, director of the PFAJ.
Other proposed amendments have been well received by PFAJ members.
For instance, when they are passed, individuals may have the option of making pensions provisions on behalf of disabled dependents, parents and grandparents.
Persons will also have the ability to contribute to more than one pension arrangement and will be able to unlock contributions through retirement schemes in the event of certain hardship and terminal illness.
"Many of the recommendations are welcome and will see the Jamaican pensions landscape moving closer and closer towards international standards," said Goffe.
The FSC's proposed amendment is geared at providing more retirement benefit products to members, reduce rigidity for members in pension plans, increasing the portability of pension plans as well as fostering saving habits towards retirement for persons not in company pension.
The regulator currently supervises 1,980 licensees and registrants as well as 522 pension funds and retirement scheme.