Yah Mon! Jamaica Innovates in Retirement Security

Sanya Goffe, Attorney at Law and Partner, Hart Muirhead Fatta

OK, we have it on good authority that our headline is a little corny. We accept that. But we gotta have fun while we’re being serious. So let’s dive in. “I didn't know there were so many people who were passionate about pensions just like me!” she says. Sanya Goffe was called to the Jamaican Bar in 2003 after studying at the Norman Manley Law School and the University of the West Indies.  She is a Partner in the law firm Hart Muirhead Fatta with a practice focused on the areas of pensions law, intellectual property law, capital markets, and corporate law. We met Sanya during her Eisenhower Fellowship – what caught us immediately was the freshness of her thinking. Some of you know what we mean. And we had to hear a bit more about this fresh thinking in Jamaica.

Sanya Goffe, we're so pleased to have you with us. You're working on pension security in Jamaica. Tell us how you came to this place.

I don't know why I get so excited about retirement security. All my friends think I'm really nerdy, but I get so passionate about this. It's really where I see my contribution to nation building.

I'm an attorney and I was called to the Jamaican Bar 18 years ago, which was around the same time of the introduction of a regulatory framework for private sector pensions in Jamaica. Before that we didn't have a discrete set of statutes dealing with private sector pensions, we just had some general provisions under our Income Tax Act.

The law firm that I was working for at the time thought to put together a pensions law practice group. I was very interested and asked to be a part of it.

Brilliant!

Little did I know that would open up such a deep area of interest for me in terms of focusing on retirement security and old age poverty reduction in the lives of Jamaicans.

During that time, the Pensions Industry Association of Jamaica was formed. I was invited to sit on the board as a director. That brought me into the world of pension reform and improvement, and regulatory change. Over time I became chairman of the legislative subcommittee working group, and then I became the PIAJ president. I'm now in my second three-year term.

So that's how it started.

What a terrific beginning. From tax code allowances to a private sector pensions regulatory framework – what’s Jamaica's retirement savings infrastructure today?

We have the traditional three pillar system. We have our government savings arrangement which is our National Insurance Scheme. This is our first pillar, a state sponsored, mandatory contributory scheme; it’s a typical pay as you go arrangement. As an aside, I was recently appointed to the board of the NIS. I believe this puts me in the room to help push for further improvements to the first pillar.

We also have private sector pensions, our second pillar. That's a combination of employer sponsored pension arrangements and our Approved Retirement Schemes (ARS). ARS are similar to what you have as IRAs in the US.

The third pillar would be your private savings. So that's our three pillar system.

Now, the challenge we have is that coverage is very low. When you look at the private sector pension coverage hovering at about 11%. When you include civil servants who are part of the public sector pension arrangement, which is not the NIS, that number bounces to about 24%, so still very low.

So workplace pensions coverage, apart from NIS, is at about a quarter of the workforce.

Yes. Part of the work of the PIAJ, the Pension Industry Association, is to find ways for us to improve coverage and of course, public financial education. But what we have found, and I think research supports this, is that financial education is not what moves the needle. That's not what gets people running to open up a retirement scheme.

As in many other countries, there's no requirement for an employer to have a pension plan in Jamaica. So a big part of PIAJ's work is extending coverage, regulatory reform, and public education.

But if you don't have regulatory environment that fosters and facilitates employers wanting to maintain pension arrangements then that part of the conversation about coverage is a dead end.

Let’s talk about that second pillar. Employers who offer plans, what's their profile -- why do they do it if they don't have to?

A big part of it is culture, a big part of it is employee retention, and remuneration and attractiveness as an employer.

A lot of the larger employers have traditionally offered Defined Benefit plans. At the same time we are experiencing a major de-risking transition – with employers moving from Defined Benefit to Defined Contribution plans. They don't want to move people to an ARS or discontinue a pension arrangement. but they do want to put in place a pension arrangement that's practical and one that they can manage from a risk perspective. So we have a shift to DC.

We are also seeing employers who are choosing not to set up their own sponsored pension plan, but they will match employee contributions in an Approved Retirement Scheme.

One thing this structure does is it facilitate portability; if people are moving or leaving their employment, they can continue to contribute to their ARS account because it's their account. It's not attached to the employer.

So, you do see that some of the smaller employers with fewer than a hundred employees tend to be more attracted to an ARS, but they do it in a facilitative way with matching contributions.

A good fit with the concept that coverage matters. Going back to that 24% level, what are some of the unique characteristics of Jamaica that lead to lower levels of retirement plan coverage and use?

We have, just like many countries in the world, a worsening old age dependency ratio. That's a global phenomenon. In Jamaica, we are trending consistently with the IMF and World Bank projections to double our old age dependency ratio by the year 2050.

What we have in Jamaica that makes it particularly concerning for us is a cultural expectation for your children to look after you. That can be even more pervasive in the socioeconomic groups that are less likely to have access to retirement savings at work. There is generally that expectation. And we have a phrase in Jamaican dialect where we say: “mi pickney a mi pension”. ‘Pickney’ is a dialect word for child, so “my pickney, my child, is my pension”.

We can relate to that. When our son was born, we nicknamed him “my little retirement plan”.

(Laughter) … But it's actually an entrenched cultural viewpoint: ‘I've looked after my children, they need to look after me.’ That creates this intergenerational dependence, intergenerational pressure, and it can perpetuate intergenerational poverty.

Old age poverty is also very real. You see in Jamaica persons who worked during their lifetime, they looked after themselves. But once they entered retirement, they weren't adequately prepared. And so they look to their children for support. Then you have the children spending on the parents and not saving for themselves, which creates a dependency they may have on their own children. You just repeat the cycle.

Disrupting that intergenerational independence is a big part of our challenge here.

Family first – but giving your savings 40 years to work for you while you’re working for others can also change family wealth for the better. What are some of the other factors?

We have a large percentage of low income informal workers. Because of that, bringing people into the formal pension space, even so that they receive first pillar NIS contributions and benefits, is a challenge.

When people are earning just that minimum wage, it's hard to encourage them to think about making a contribution to their NIS or to a private sector pension arrangement. So we have to look at a multifaceted, multi-pronged approach in terms of solutions for pension coverage in Jamaica.

One facet is auto enrollment; that's something that I'm championing and we, the PIAJ, are doing a lot of work exploring that one. Another is “micro pensions.”

Micro pensions use the “automatic” concept too – how do you see them fitting in?

Micro pensions is the concept of small, very small, micro contributions to a pension arrangement, made using the support of technology as the plumbing. Think about text messages that prompt you to make a small contribution. Or perhaps you drive up to the gas station and you can top up your payment, and your top up goes to your pension account. You go to the grocery store and you can round up your bill and that rounding up value goes to your pension.

These are small ways. You don't have to think about it, and it’s not burdensome. This also redesigns the choice architecture so that you no longer have to feel as if retirement saving is something challenging you have to go and do. It's kind of done for you. It’s presented to you easily and in little bits all the time.

So that's another potential facet. We're just at the preliminary stage in Jamaica. Our regulator, the Financial Services Commission, is doing some stress testing and assessments around micro pensions; we, the PIAJ, stand ready to support the FSC in this regard.

You’ve got other important work under way.

Yes. Another area, which I really am looking for my organization to be at the forefront of driving, is automatic enrollment. Let me tell you the story.

So I am a 2020 Eisenhower fellow. Each fellow has to have a project they focus on as part of the fellowship. I started with my project focusing on micro pensions. And I remember the head of Eisenhower saying to all of us fellows early on, “You may start with your project being one thing, but keep your mind open about it becoming another thing.” And, let me tell you, I thought I knew a lot about pensions and I knew a lot about what was going on!

I thought I kind of had it together. Oh my goodness. The Eisenhower Fellowship opened my mind.

Now we’re laughing.

Right?! First of all, I met fellow pension lovers. I didn't know there were so many people who were passionate about retirement security just like me, so that was just great energy. But also there was just so much happening and so much I didn't know, and auto enrollment was a big part of it.

I'd heard about auto enrollment as a concept, but as I went through the program, I learned just how powerful it can be in changing and shifting the needle when it comes to retirement coverage.

So that actually became my closer focus. Then I had this brainchild: We're going to do it for Jamaica! I'm going to try my hardest to convince our regulators and my Minister of Finance that this is a meaningful and powerful solution.

So I met with several people, you were one, all of whom helped me to understand the different approaches and it was great. Next I spoke to my PIAJ Board and they were all behind this idea. Then I put together a working group, four of us: two young social economists, and myself and another director on the PIAJ. I spoke to our Minister of Finance informally. And he was open to understanding more. That was encouraging.

And you started in on a concept paper to evaluate and propose retirement security solutions using automatic concepts.

Yes - and I thought that would have a paper in 30 days, you know, in time for the Budget. No, not at all.

We have been working on the paper for months. Some of our challenges are around data. And then also everybody's working; everybody has full-time jobs in addition to this advocacy focus. So we have dedicated many, many Sunday afternoons just slugging through, putting the paper together. It's pretty much done and we're now in the feedback round. It has been really helpful to get all the different perspectives, local and global, and we appreciate it. I also think the international feedback from experts who have implemented and lobbied for auto enrollment gives credibility to what we are doing.

What comes next — your proposals could make a significant difference for working Jamaicans and their families. What are the challenges you see in getting the proposals heard and adopted?

We recognize that there's a resource issue when it comes to the simple act of moving proposed legislation through all the different layers. That's always a challenge that we're going to have. When this report is publication ready, we plan to share it with the regulators and the Minister of Finance. It would probably be a good idea to do a kind of roadshow to share this information more broadly and to take comments and input.

We've also identified certain key private sector associations where buy-in and engagement are very important. These include the Private Sector Association of Jamaica, the Small Business Association, Jamaica Employers Federation, and the Jamaica Chamber of Commerce.

One challenge we anticipate: everybody's going to have a view. We’ll need to balance a range of perspectives with a viable and focused approach.

Well said.

Putting the paper together is great and we are feeling really good about it.  But the next step is a very, very important step: selling it. This area will be new for us; we will want to tread very carefully and very mindfully, and communicate effectively within the Jamaican context and the culture. So that's a next step for us.

Related, how does private industry fit in? We’re thinking about folks who might have a role in supporting a program: asset managers, record-keepers, and others.

Fortunately, many of the PIAJ board members and directors are the heads or decision makers in some of the larger investment managers and administrators in Jamaica, all of whom champion increased coverage and innovation around retirement security. My hope is that we will get a lot of support from the asset managers and record-keepers; we are partially engaged now because of the makeup of our Board.

You have lots of good voices involved from so many different places, well done. Final fun question. Where should we stop for lunch next time we're in Kingston?

Ooh! l visited a new restaurant just a few weeks ago. It's called Broken Plate. It's right in the city with excellent food. It’s owned by two very personable young Jamaican guys. I had such a great time; really good Jamaican cuisine with a fusion flare. And they serve at the end lovely pistachio ice cream and fruit sorbet based on what’s in season and it's just delicious.  I would definitely suggest Broken Plate as one of your stops.

We’re in! Sanya Goffe, thank you so much for your fresh update on retirement security innovation in Jamaica. We can’t wait for your next news.

Want more? You can connect directly with Sanya by email here.  You can follow at the Pension Industry Association’s work here and @jamaicapensions on Instagram and Twitter. You can also connect with Sanya at LinkedIn.

This piece was featured in the June 17, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.