Last week, we explored insurance as a wealth preservation tool. This week, I want to delve into another aspect of living a life of true wealth at all stages: Preparing for retirement. Financial obligations persist well beyond the point at which an individual formally exits the labour force. It is crucial, therefore, to establish plans for sustained financial independence and the maintenance of one’s stan standard of living post-work. This financial inflow is commonly known as a pension. According to data from the Financial Services Commission (FSC), as of March 2023, only 10 per cent of Jamaica’s working population was enrolled in an approved pension scheme. This statistic underscores the significant likelihood of a reduced quality of life after the official retirement age for many Jamaicans. The reality is that there are considerable barriers hindering the increase in retirement planning in Jamaica.

“Recent research conducted by the International Labour Organization (ILO) Regional Office for Latin America and the Caribbean uncovered a pressing issue that resonates not only in the region but also globally. This research has unveiled that more than a third of retirees face a grim reality — they are either without sufficient pension support or lack the financial means to sustain themselves during their retirement years.

The ILO comprehensive analysis reveals that a significant 60 per cent of individuals aged 65 and older find themselves in a situation of economic vulnerability, devoid of any labour-related income or pension. This alarming statistic represents a disturbing trend and is further exacerbated by the economic challenges Jamaicans currently face.

Pensions are essential for ensuring financial security in retirement, and Jamaicans have historically faced challenges in accessing pension schemes or putting robust plans in place for retirement. Many of the barriers have been cultural and economic in nature and are at the heart of these challenges.

Cultural significance of the family structure

One of the most prominent cultural barriers to pensions in Jamaica is the strong emphasis on the family structure. Jamaicans place a high value on the extended family, where children often provide financial support to their parents in their old age. This cultural norm has been deeply ingrained for generations, and it can lead to a reluctance to invest in pensions. Many Jamaicans believe that their children will take care of them in their old age, making them less inclined to save for retirement.

Now when one considers the burden of student loan debt, the cost of housing (either rent or mortgage), the fact that most people 22-30 years of age would not be in position to take sufficient care of their own finances, it is easy to see just how much of a conundrum this presents for both the older parent and young adult.

Reliance on informal economy

Jamaica has a significant informal economy, with many people engaged in activities such as hairdressing, barbering, vending, carpentry, masonry, plumbing, small-scale agriculture, and a host of other regular and irregular types of labour. This informal economy often does not utilise formal pension schemes, leaving individuals to fend for themselves when it comes to saving for retirement.

The cultural barrier here is the perceived inaccessibility of the formal pension system and a reliance on less formal structures such as “throwing a partner” or having no structure at all. In a society where the informal economy plays a crucial role, individuals may view formal pension plans as an option that is either too complicated to understand or something meant for blue-collar employed people or wealthier individuals. The actual truth is that with the advent of approved retirement schemes, many people in the informal sector can, in fact, set up and benefit from a formal pension arrangement.

Mistrust of Financial Institutions

A general mistrust of financial institutions is another cultural barrier to pensions in Jamaica. This distrust is fuelled by various historical and socio-economic factors. For instance, the infamous financial meltdown in the 1990s, which resulted in significant losses for investors, left a lasting impression on many Jamaicans. This mistrust carries over to pension funds, as people are sceptical about entrusting their retirement savings to these institutions. A preference for physical cash is another manifestation of this mistrust.

One of the great structures to come out of financial meltdown was the creation of the Financial Services Commission (FSC). The FSC came into existence on August 2, 2001, and has broad oversight of insurance companies, securities dealers, and pension fund managers. Through their efforts and the efforts of a financial sector keen on ensuring the viability and good governance of all pension assets, participants in approved schemes can be assured of the effective management of their hard-earned pension contributions.

Short-term mindset and immediate gratification

The cultural inclination towards immediate gratification is a universal challenge, but it presents specific difficulties for pensions in Jamaica. The “here and now” mentality often prevails, making it difficult to persuade individuals to sacrifice some of their current earnings for future security. Jamaicans may prefer to spend their money on immediate pleasures, such as festivities, celebrations, or acquiring consumer goods, rather than saving for retirement.

This cultural preference for short-term gains is compounded by economic disparities and the perception that life is unpredictable. Many Jamaicans, especially those from lower-income backgrounds, may believe that the future is uncertain, leading them to prioritise present consumption over long-term savings.

Cultural and economic barriers to pensions in Jamaica are deeply rooted and multifaceted, making them challenging to address. However, with the right mix of education, innovation, and government support, these barriers are gradually being overcome. Indeed, when one looks at the 10-year FSC data on the pension industry the indicators are positive. In March 2014, Jamaicans enrolled in a formal approved pension arrangement totalled 101,066. As at March 2023, the total enrolment stood at 151,846, a 50 per cent increase in enrolment over the period. When one considers that the total working population in Jamaica numbers somewhere between 1.4 and 1.5 million, it is clear that a collective push is required to ensure every single working Jamaican gets to enjoy the peace of mind that having a pension arrangement will bring.”

The time is now for introspection. Have you found that any of these issues have subliminally prevented you from starting your pension plan? Is your post-work financial experience likely to leave you compromised or unnecessarily vulnerable due to a lack of planning?

Speak to a wealth advisor today to start the conversation about investing for your future or visit
smart.ncbinsurance.com to explore a pension plan that may be right for you.