Anyone keeping abreast of Jamaica’s pension crisis will certainly feel great unease at the fact that our population — already shrinking due to a combination of migration and the declining size of families — will age much faster as our demographic dividend (growing working population relative to non-working) ends. In fact, it will soon go into reverse.

However, the most urgent thing to address immediately is the issue of our existing pensioners or workers who are about to retire. Most pension plans in Jamaica, as in other jurisdictions, have defined contribution and not defined benefit plans.

This means that they are effectively long-term mutual funds. A typical approach is that five per cent of a pension plan member’s salary would be matched by an employer. The problem is that doing the minimum, meaning a combined 10 per cent of one’s salary, is very rarely enough to replace employment income at retirement, even if the worker contributed faithfully every month and stayed at the same employer for his/her working life.

It is, also, definitely not enough if one moved around or started late.

People move around, particularly in seasonal industries, and the new world of flexible work will make this an even bigger problem. The last thing that any State needs is for a normally self-sufficient working population to require more services to keep them from the poorhouse when they become pensioners.

Unlike the developed countries which we often compare ourselves to, our safety net is extremely thin in terms of public services, so it is infinitely better when our pensioners can manage for themselves.

The problem is our retirement system, like others globally, is still largely based on assumptions from the bygone era of the defined benefit plan, where the employer was on the hook for providing the pension benefit on retirement. It makes no sense, for example, to restrict the use of one’s own retirement assets above a certain amount in calculating a pension without specific tax authority approval, rather than using 100 per cent of what is really your own mutual fund.

An even bigger problem is the concept of taxing pensioner income, at least for the vast majority of Jamaicans. The justification normally offered is that the pensioner will have already benefited from the tax deferred nature of pension, meaning that their contributions would not have not been taxed as income when they entered the pension fund, and were thus allowed to compound tax-free over time. However, except for the small number of those with an unusually high income — which would be very easy to identify from the PAYE system — the vast majority of pensioners would not be getting even the normal tax income threshold when, as is typical, they convert their pension balance to a fixed monthly payment.

So meeting the tax authority’s administrative requirements to avoid the automatic deduction of income tax is, for most, an unnecessary administrative hurdle, which becomes worse for older pensioners not used to technology, or living far away.

In fact, most pensioners are unlikely to get even 30 per cent to 40 per cent of their pre-retirement income — when the normal amount recommended is 80 per cent — even if they contribute the maximum 20 per cent of their income, depending on when they started to contribute.

While the increase in the additional yearly age relief — on top of the normal income tax threshold — for people over 65, from $80,000 to $250,000 in the recent budget, was a long-overdue welcome step in the right direction, this is still insufficient.

Most pensioners face medical expenses that are increasing sharply in a society that has insufficient national health-care provisions.

The Government should look at increasing the maximum tax-free income pension contribution beyond the current 20 per cent, particularly for older cohort of employees.

In the same way that public sector salaries have finally been increased after long years of austerity due to Jamaica’s debt crisis, it is worth remembering that pension funds made significant contributions to our macroeconomic stabilisation through our two domestic debt exchanges in 2010 and 2013, which would have hurt them more due to the long-term nature of their assets than shorter debt maturities held by other financial institutions.

In the spirit of national partnership, the second half of this year may be a good time to begin paying back our seniors for their contributions to our society to allow their so called golden years to actually be golden.