Design flexible pension products
Sanya Goffe

PENSIONS, globally, need to be flexible, especially with the rise of the so-called gig-economy.

The working demographic is changing and frequently we see examples of millennials and Gen-Yers who are not looking to stay in one place of employment for an extended period of time.

Instead, they work temporary jobs, for instance freelancing and working for ride-sharing companies such as Uber.

As such, these “gig workers” are either making no contributions to schemes or only contribute in the very short term, and may not adequately be able to claim pension benefits at retirement as they very rarely vest in a pension arrangement.

With many countries in the Caribbean experiencing low pension coverage there is a need for an adaptable framework that is inclusive of all types of employment — and even more pension reforms are needed to facilitate this adaptation.

It must, however, be noted that it's not just young people who are now “job hopping”. Every day, more and more seniors are engaging in these work practices worldwide.

From a report commissioned by Uber in 2015, 21.8 per cent of Uber's driver-partners in the US were between the ages of 50-64, and 2.7 per cent were 65 plus.

Many of these older workers have been, essentially, forced into the gig economy work because of low pension payouts and insufficient savings that make it uncomfortable, if not impossible for them to retire.

Targeted Measures for Non-Standard Forms of Work (Gig Workers)

Making sure that old-age pensions and retirement savings arrangements are sustainable and provide adequate income, even during crises and their aftermath, includes taking into consideration the different kinds of workers and their savings opportunities, or lack thereof.

Those in non-standard forms of work — part-time and temporary employees, self-employed workers and informal workers — have limited access to public and private retirement schemes and build up lower retirement entitlements than do full-time, permanent employees. They are also more likely to work in the sectors that have been hit hardest by the COVID-19 crisis, such as tourism, hospitality, health care and personal services.

Policymakers need to consider targeted measures for non-standard workers, for example reducing the statutory vesting periods. From the standpoint of retirement income adequacy alone, it is desirable to encourage the immediate vesting of accrued benefits. And with more people frequently changing jobs, vesting periods need to be flexible.

Additional Solutions:

1) Side Car Savings Accounts/ Hybrid Retirement Savings Models

The concept of side car savings has become increasingly popular. It involves developing long-term savings arrangements that include both a savings account earmarked for retirement and a savings account intended for emergencies. This will help to make retirement savings more resilient and better able to address the challenges posed by the need for early withdrawals that a global crisis such as COVID-19 can trigger.

2) Student Debt Repayments Counting Toward Contributions

An interesting concept that will help young members of pension plans is to allow them to make student loan payments while their employer makes matching contributions to their defined contribution accounts. In other words, you treat the student loan payments as if they were salary reduction contributions to the plan. This facilitates young employees building up their retirement accounts while paying down their student loans at a time when making contributions to their employer's pension plan can be financially burdensome.

3) Auto Enrolment

Auto enrolment is a programme where a worker, who is not participating in an employer's pension plan, is automatically placed in a retirement scheme and must make the active choice to be taken out of the scheme. Examples in the US are CalSavers and OreganSaves, or in the UK you may have heard of the UK's NEST.

The feature that makes auto-enrolment so successful is that it banks on the natural human inertia to do nothing. It does not rely on an individual to take the step to enrol in a pension arrangement but rather puts the onus on the individual to take the step to opt out of the pension arrangement. Behavioural science supports that most persons generally do not take the step to opt out. The result is higher levels of pension savings and participation, often in the range of 50 per cent - 70 per cent. Remember coverage in Jamaica is between 9-11 per cent, so auto enrolment could be a major game changer.

4) Micro Pensions

Another strategy to encourage savings would be the implementation of a micro pensions framework for low-income and informal workers. Micro pensions is the concept of making very small contributions to a pension arrangement, but these contributions are made more often than you would in your traditional arrangements. Imagine text messages that prompt you to make a small contribution deducted from phone credit or possibly a linked bank account. Or perhaps at a gas station or grocery store you are prompted to top up or round up your payment and that excess goes to your pension account. You don't have to think about it, and it's not burdensome.

Both auto enrolment and micro pensions are examples of redesigning the traditional means of pension savings so that you no longer see retirement saving as something challenging. The heavy work is done for you. The Pension Industry Association of Jamaica (PIAJ) will shortly be releasing its proposal for the implementation of auto enrolment in Jamaica.

The income derived from a pension, in the majority of cases, is what determines whether we are able to lead an independent and dignified life after retirement. Advancing retirement security will see more Jamaicans living prosperously, thus supporting financial equity.

Sanya Goffe is an attorney at law and president at Pension Industry Association of Jamaica.

Information sources: [1] An Analysis of the Labour Market for Uber's Driver-Partners in the United States s3.amazonaws.com/uber-static/comms/PDF/Uber_Driver-Partners_Hall_Kreuger_2015.pdf

[2]The Uberization of Retirement: What does the Gig Economy tell us about Failing Pension Systems? www.unrisd.org/unrisd/website/newsview.nsf/(httpNews)/ A355870DBFC23891C125814F002EDA58?OpenDocument&newstype=viewpoint&cntxt=78066&cookielang=es#top

Sanya Goffe

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