Saving for retirement in the tourism industry
For some employees, deductions from pay slips representing mandatory and voluntary contributions into a pension plan established by their employer is commonplace. However, the industry statistics for December 2018 (the 2018 Report), published by the Financial Services Commission (the FSC), states that, as at December 31, 2018, private pension coverage stood at 9.5% of the employed labour force.
Saving for retirement is crucial and pension plans play an important role in ensuring that an employee has income at retirement.
In a pension plan, mandatory and any applicable voluntary contributions are usually automatically taken out of the remuneration of an employee. These deductions, along with the contributions from the employer, are then paid over to the investment manager of the pension plan.
The employee will not be able to access pension payments or receive a cash refund until they retire. Despite the benefits and advantages of pension plans, there are not very many registered pension plans. According to the 2018 report, there are only 807 registered pension plans. This may be as a result of pension plans being expensive to establish and maintain. In establishing a pension plan, experts such as investment managers, administrators, attorneys-at-law and auditors have to be engaged.
Additionally, an employer is obligated to make contributions, and these contributions can be up to 10 per cent of an employee’s remuneration. There are many other factors, such as the reporting requirements, which contribute to many employers not establishing pension plans.
In an effort to improve the overall standard of living for its employees of the tourism sector, the Government of Jamaica is in the process of establishing the Tourism Workers’ Pension Scheme (the Scheme) by way of the Tourism Workers’ Pension Bill (the Bill). The draft Bill was tabled in Parliament in May of 2019 and is currently being debated. Under the provisions of the draft Bill, the FSC will be responsible for the regulatory oversight of the scheme. A board of trustees (the Board) is to be established and the Board will be vested with the administration, investment management and control of the scheme.
Persons who would be eligible to become members of the scheme under the current draft Bill are:
A tourism worker, who at the date of commencement of the Act, is over 18 years but has not attained the age of 60 years, and is not a member of an approved pension plan;
A person who is over 18 years but under 60 years and becomes a tourism worker after the date of the commencement of the Act; and A self-employed tourism worker upon the approval by the Board of an application for membership.
A “tourism worker” is defined in the draft Bill as a person who is employed to a “tourism enterprise”, whether or not the person is employed for a specific period commencing at approximately the same time in each year, or in two consecutive years. A “tourism enterprise” includes a tourist accommodation licensed under the Tourism Board Act, any car rental or U-drive services or any service of rental of motor vehicles, sites and other facilities for camping, water sports services and any other service, utilised by or offered to tourists and declared by the minister, by order, to be a tourism enterprise.
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A “self-employed tourism worker” means a person who delivers a service to a tourism enterprise on his own behalf and includes a tourism operator. A “tourism operator” means a person who conducts, manages or operates a tourism enterprise. In most cases this would be the employer. A person will not be eligible for membership under the scheme unless they have been ordinarily resident in Jamaica for a continuous period of not less than six months prior to the date of admission into the scheme.
The scheme is a defined contributory scheme, whereby the contributions of the employee and employer are known, and the benefits received at retirement would be the amount that can be secured by the investment of the contributions paid. Every tourism worker who is a member of the scheme will have mandatory contributions of 3% of their earnings in the first three years following the commencement of the Act and 5% thereafter. Additionally, every tourism operator will be obligated to remit an additional amount of 3% of the earnings of the tourism worker in their employment for the first three years following the commencement of the Act, and 5% of the earnings of the tourism worker thereafter. Therefore, a tourism worker will have a total of at least 6% of their earnings being contributed to the scheme for the first three years and at least 10% thereafter. A tourism worker may elect to make additional voluntary contributions into the scheme, so long as the total contributions made by them and on their behalf by their employer, does not exceed 20% of their earnings.
Under the draft Bill, a tourism operator who does not pay over the contributions made by, or on behalf of, a tourism worker commits an offence, and would be liable, on conviction before a judge of a parish court, to a fine not exceeding $3,000,000. The court may also order the tourism operator to pay interest at a rate of 1% per day from the date on which the payment of the contributions was due until the payment is made and the expenses of collection of such contributions.
The establishment of the scheme would ensure that employees in the tourism sector would be able to save towards their retirement. One of the advantages of a pension plan, is that all contributions are pooled and invested together. A larger investment pool usually yields better returns. Pension at retirement is an important income source for individuals.
It is important that individuals begin saving for retirement, and the draft Bill, when enacted, should ensure that employees in the tourism sector can contribute to their financial stability in the future.
Helen Liu is an Associate at Myers, Fletcher & Gordon, and is a member of the firm’s Commercial Department. She may be contacted via [email protected] or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.
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