PENSION funds are long-term investments, and there are lessons to learn from the major decline in performance of these funds in 2022 locally and globally, which saw pension contributors and in particular, pre-retirees worried about their retirement plans.

However, it can’t be over-emphasised the importance of saving for retirement early. Contributors who started contributions early benefit from having their funds invested for many years, earning tax-free returns on their investments at compound interest. The many years of positive sustained growth over the long term cushions any negative fund performance that may occur from time to time. It has been proven that over the past 15-20 years active pension funds recorded positive investment returns for contributors. The opportunity exists for pension fund managers and policymakers to ensure that pension funds remain resilient during times of economic instability.

Many people start working in their twenties and hope to retire in their 60s – that’s about 35 – 40 years of working for a living; and during those years, employees should ensure that pension contributions are made. In addition, contributors should seek to maximise pension contributions instead of being satisfied with minimum monthly contributions. This would augur well for long-term growth in pension funds that can provide adequate income replacement for 20 years or more in retirement as life expectancy is increasing.

The good news for pension contributors is that after the investment losses sustained by pension funds in 2022, there has been a rebound in pension fund performance in 2023 which continued into 2024. The investment outlook for the future is optimistic. Major economies such as Canada, the US, Japan, the UK, the Netherlands, and Switzerland are projecting positive investment returns for 2024. Pension fund returns in the US are estimated at 17 per cent. In Jamaica, I have observed that pension fund manager BPM Financial Limited has seen creditable returns so far this year, continuing the rebound that started in 2023.

The economic climate is not static and interest rates in Jamaica are expected to decline once the inflation target is achieved by the central bank. Pension fund managers must ensure that pension contributions are invested in the right range of assets that are geared to meet the retirement goals of the clients.

In Jamaica, pension fund managers seek to invest and manage funds wisely on behalf of clients. The Pension Industry Association of Jamaica (PIAJ) is lobbying the Bank of Jamaica to increase the foreign exchange limits that private pension funds can offer in their asset mix.

Currently, the allowable limit for US-denominated assets in pension fund portfolios is 10 per cent. There are tremendous benefits for pension contributors to derive such as greater returns on investment in the long term as fund managers can be more dynamic in diversifying investments which will result in greater returns on investment while reducing risks, such as currency devaluation. With a healthy net international reserve, stable foreign currency, and a significant reduction in Jamaica’s debt-to-GDP ratio, there is an opportunity for pensioners to benefit from greater pension income because of increased investment options available to pension managers in growing pension funds. An increase in the foreign currency limit will create confidence in pension fund investment by contributors.

Inflation and devaluation can be a nightmare for pensioners. As major pension funds around the world recover the 2022 losses Jamaica should not be left behind. Policymakers should act promptly in approving the PIAJ’s proposal as this initiative will not only help to generate adequate retirement income for pensioners but also boost the nation’s economic growth.

– Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at: livingaboveself@gmail.com