Melanie Kamilah WilliamsSenior Legal Officer, Financial Services Commission

FSC’s Regulation of Private Pension Plans

• The views expressed in this presentation are those of the Author and do not necessarily represent the views of the Financial Services Commission, its Board of Commissioners, its officers or staff.

• In relation to Phase II, the policy proposals are the result of detailed consultation and are subject to the consideration of Parliament

Disclaimer

• As at March 31, 2015• AUM - $350 Billion• 102,222 persons in private

pension plan• 13 retirement schemes• Reduction in number of funds to

410

Macro-economic context – Private Pensions

As at March 31, 2015• Increase in ARS membership of

approximately 40,000• 28% increase in ARS

membership• Coverage increased to 9.4% of

labour force

• As at December 31, 2014• AUM – 14.36% of financial

industry• AUM – 24% of GDP

Macro-economic context – Private Pensions

Long-term goals of FSCIncreasing pension coveragePromoting retirement schemesEnhancing risk-based supervisionSafeguarding pension assetsImproving enforcement and resolution powers

• Third Pillar of a sound Retirement System• Distinct from NIS• Voluntary retirement saving arrangements• Accumulation phase (saving monies for retirement income)• Established by employers voluntarily (superannuation funds)• Or established by life insurance companies or securities dealers

(retirement schemes)• Retirement schemes are a retail retirement product – open to public

Private Pension Plans

• In mandatory pension systems – automatic enrollment, mandatory participation• In voluntary pension systems – creation of arrangements driven by:macro-economic conditions potential business revenue regulation preferential tax treatment behavioural norms current labour market conditions (trade unions)

Private Pension Plans

• In Jamaican context:

Incentives for private pension plans – favourable tax treatment (EET)Incentive for employers creating superannuation funds – retention of

talented labourIncentive for employees – deferred pay (ASF), future income security

Private Pension Plans

• For retirement schemes – challenges include:

PovertyLack of financial awareness among labour force high degree of informality cultural norms – dependence on children, remittancesreluctance to engage with financial sector

Private Pension Plans

• Financial Services Commission Act• Financial Services Commission Act (Pensions) Order• Pensions (Superannuation Funds and Retirement Schemes) Act

and Regulations• Financial Services (Amendment to the Fourth Schedule)

Order• Case Law

Source of FSC’s regulatory powers for Private Pension Plans

• Encouraging growth of private pension plans• Fostering increased pension coverage• Better managed plans, which are solvent• Better informed participants• Greater transparency in pension plan management• Accountability of trustees, investment managers and administrators• Identification of high risk plans

Purpose of Regulation

• Registering existing pension plans and new plans – section 5• Regulating of trustees, corporate service providers (investment

managers, administrators)• Approving amendments – “best interest of the plan”• Enforcing compliance with reporting requirements• Funding and Solvency of Pension Plans

Focal Points of the legislation

• Risk based supervision• Statutory filings• Disclosure to participants• Financial Education• Mandating Governance

Standards• Enforcement

FSC’s regulatory tools

• Desk based examination• On-site examination• Target examinations• High risk pension plans • Heightened monitoring• Timely enforcement action

Risk based supervision

• Certified Financial Returns• Annual Report • Actuarial Valuation – imposed by TAJ, usually triennially• SIPP – statement of investment principles and policies• Constitutive documents • Fit and Proper documents for Trustees, Corporate Service Providers

Statutory filings

• Benefit statements • Members’ handbook • Information folder – retirement schemes• Proposed amendments to the constitutive documents• Material changes – Governance Regulation 13• Annual report, policy documents• Constitutive documents• Annual Participants’ meeting

Disclosure to Members

• Trustees’ fiduciary duty• Monitoring of contributions by Trustees• Supervision of agents by Trustees• Creation of written policies• Complaints Resolution• Conflict of Interests• Disclosure of fees

Governance – Consumer Protection

• Governance Regulation 27:• Prohibits false or misleading statements about contributions, benefits,

conditions or terms of the scheme• Prohibits false, misleading, deceptive or untrue course of action• Prevents market manipulation (unreasonable restraint or monopoly)• Prohibits, false, misleading or deceptive forecasts in order to induce

membership• Prohibits dishonest concealment of material facts• Prohibits making reckless statements, promises or projections

Market conduct of retirement schemes

• Prohibits any rebate of contributions as inducement for membership• Prohibits false record keeping• Prohibits termination or refusal of membership on the basis of mental

or physical impairment• Prohibits inaccurate categorisation of professional services

Market conduct of retirement schemes

• Fit and Proper review of trustees, investment managers and administrators • Directions• Cease and Desist Orders• Fixed Penalties• Suspension and/or Cancellation of Registration/Licences• Criminal offences for sponsors, investment managers and

administrators• Winding up of the pension plan – nuclear option

Enforcement

• Directions – section 4 • Section 4 expanded to include sponsors, investment managers,

administrators of unapproved funds• Section 17 - suspension of an Investment Manager/Administrator or

trustee• Section 18 – cancellation of an Investment Manager/Administrator;

Trustee• Due Process – FSC to inform of proposed suspension/cancellation and

right of appeal under section 39

Directions, Suspension/Cancellation

• Funding & Solvency • Failure to provide information requested by FSC• Operations of a fund or scheme• Activities of the administrator, investment manager, trustee, sponsor• If breach of legislation is discovered, costs of investigation can be

recovered

Specific Investigation Powers – section 23

• Section 26• Directions can be issued in relation to the business of fund or scheme• Directions can be issued to administrator, investment manager,

sponsor or trustee• Directions remain in place for 12 months• Further directions can be issued

Specific Power to issue directions after Investigation

• Financial Services Commission Act, section 8• Financial Services Commission (Pensions) Order• Prescribed financial institutions – investment managers,

administrators, corporate trustees• Tied to the Third Schedule, Part A – engaging in an unsafe and

unsound practice

Cease & Desist Order, Temporary management

• Financial Services Commission (Amendment to Fourth Schedule) Order, 2014• Fixed Penalties range from $50,000 to $200,000• Relates to breaches of offences• Not applicable to Trustees (as they are not subject to criminal

sanctions)• Impacts sponsors, investment managers, administrators• Alternative to criminal prosecution – Lowell Lawrence v FSC

Fixed Penalty for breaches

• Failure to give information to members• Failure to file statutory returns at prescribed deadlines• Failure/refusal to give information to FSC as requested• Sponsoring a fund or scheme without being registered• Operating as an investment manager or administrator without being

licensed• Failure to keep proper records as an administrator or investment

manager

Fixed Penalty for breaches

• Knowingly filing incorrect returns• Sponsor’s failing to pay over contributions to investment manager• Obstructing a search or seizure of property• Applies to failure to display a certificate of registration

Fixed Penalty for breaches

• Adequacy Phase• Vesting – maximum 5 years from Amendment Act• Funding & Solvency• Portability of pension benefits• Regulation of surplus distribution in an ongoing fund• Simplification of amendment process• Permitting multiple membership in retirement schemes and funds

Phase II – Key Proposals to safeguard assets

• Partial winding up• Enhanced investigative powers • Enhanced enforcement powers• Registration of sales representatives for retirement schemes• Financial hardship payments from retirement schemes• Regulation of advertisements

Phase II

• Ongoing Consultation• Comments have been received from:• PFAJ• CAA• JEF

Phase II

• Retirement planning – school curriculum (primary, high schools)

• Targeted financial inclusion campaigns – universities, work-places, churches

• Use of mobile apps, social media, games, cartoons

• Education of sponsors

• Agents – answerable to Trustees, not sponsor

Financial Education - Important Needs

• Need to educate young persons about the importance of retirement planning• Changing cultural norms and family structures – affect content of

message• Content creation and delivery of message needs public-private

partnerships• Creative methods of delivery message to target audiences• Social media, Mobile apps, cartoons • Traditional methods of delivery – print media, radio, television

Need for Financial Awareness

• Macro economic conditions require sound retirement planning strategies • Behavioural Economics• Cost of superannuation funds prohibitive for MSMEs – retirement

schemes the solution• Need for growth in retail retirement savings products• Retirement schemes – avenue for financial inclusion • Retirement schemes – open to self-employed persons, employees who

are not in ASF• Phase II seeks to promote retirement schemes

Need for Retirement Planning

• For further information, please contact the FSC at:• 39 – 43 Barbados Avenue,

Kingston 5, St. Andrew, Jamaica• Email:

williamsmk@fscjamaica.org

Thank You!!!