The recent report of the Financial Services Commission of Jamaica (FSC), the entity which regulates the pension sector, shows that pension assets continued to fall in the December quarter.

The FSC noted that the Jamaican private pensions industry’s track record of consistent growth each quarter was disrupted by periods of contraction during 2020, which resulted from the novel coronavirus pandemic and consequent uncertainties in the market. Overall, the industry’s assets contracted by 5.38 per cent.

At the end of 2020, assets totalled $663.07 billion, this compared to $700.73 billion in 2019.

However, the number of pension plans increased to 817 in 2020, compared to 809 the year before and membership grew by 6.79 per cent from 127,347 to 135,992 in 2020.

In total the level of population coverage climbed 11.54 per cent in 2020, compared to 2019: 9.98 per cent.

The FSC said a notable trend during the final quarter of 2020 was that level of investment in Goverment of Jamaica (GOJ) securities which surpassed investments in stocks and shares as the second-largest asset class by December 2020.

GOJ securities, while offering the lowest rates of return, are considered a safe harbour during times of financial uncertainty. Pooled arrangements, which are a combination of different assets, remained the largest asset class. The FSC noted that during the quarter, there was also increased diversification of assets.

Investments in pooled arrangements, GOJ securities, and stocks and shares have encompassed the largest portion of private pension assets for the last five years.

Over time, there has been a gradual shift from investments in GOJ securities to equities and pooled arrangements. Pooled arrangements, valued at $250.02 billion, remained the largest asset class (37.75 per cent) during the calendar year; however, investments in GOJ securities (22.22 per cent) surpassed equity investments (21.74 per cent) to become the second-largest asset class within the aggregate private pension portfolio.

This change, the FSC outlined, was partially attributable to declines in the value of equities due to uncertainties presented by the pandemic.

Consequently, direct investments in GOJ securities and stocks and shares valued $147.17 billion and $144.01 billion, respectively, as at December 31, 2020.

More diversification was evidenced by increases in direct holdings of deposits, repurchase agreements, promissory notes, real estate, and mortgages during the period.

The FSC’s report that some pension plans have also begun to pursue investments now permitted by the amended Investment Regulations, such as private equity, notwithstanding there is a general reduction in funds invested in other assets.

The regulator observed, “Trustees and agents have been exploring available investment opportunities as well as diversifying assets to reduce concentration risk. Notwithstanding, a 5.38 per cent annual reduction in the value of total private pension assets, a 3.72 per cent increase was recorded during the December quarter.”

As at December 31, 2020, there were 377 active pension plans within the Jamaican private pension industry. Despite the entrance of nine new pension plans into the industry, eleven plans exited; as a result, there were two fewer active private plans in the industry when compared to the previous year.

The FSC observed that the persion industry experienced steady growth in active membership. While private pension assets in active plans would have reduced by 5.41 per cent to $653.23 billion, active plans accounted for approximately 99 per cent of total private pension assets, an increase from the 98 per cent reported in the previous year.