Ashford W. Meikle, Business Reporter

Robin Ellison, pension expert, Brian Wynter, executive director of the Financial Service Commission (centre) and Ingrid Chambers, managing director of WITCO in conversation, on February 16, 2006 at the Knutsford Court Hotel, St. Andrew. - Contributed

Pension plan providers are upset at regulator Financial Services Commission over a longtime decision to back page retirement schemes, saying it leaves thousands of workers exposed, as the September 29 deadline approaches to register pension funds.

The FSC is refusing to grant licences for approved retirement schemes, say fund managers.

But the FSC counters that it wants to ensure that proper due diligence is done on the schemes and their managers before allowing new ones to come on track.

"It's going to be detrimental for many workers," said a senior manager in the estimated $120 billion superannuation industry, who requested anonymity.

"A lot of opportunities will be lost for many people who might want to start personal pension plans and can't start them because they are so slow in approving the schemes,"

The near 18-month-old Pensions Act includes 'very clear pro-visions' for retirement schemes, said the executive, who also told the Financial Gleaner that there was heavy subscriber demand.

"But the FSC is not approving any licences, and this is causing a major bottleneck in the pension business."

That because the regulations are not yet in place to police that end of the industry. But there is provision for old schemes to continue operating, according to Bryan Wynter, executive director of the FSC.

Transfer of benefits

Ingrid Chambers, managing director of West Indies Trust Company (WITCO) said as the pension industry gears for regulation, several approved superannuation funds are being wound up, and some of their subscribers have opted to transfer their benefits into ARSs.

"Those members continuing their employment need to continue their retirement savings which is appropriately achieved through a retirement scheme," said Chambers.

"With the delay currently experienced, the members have no other tax deductible environment to transfer their accumulated contribution from a wound up fund."

The Pensions Act of 2005, the first phase in the reform of the industry, requires pension fund managers and trustees to take on greater fiduciary responsibility for the monies they manage.

It is estimated that fewer than 80,000 persons in the private sector are beneficiaries or members of pension schemes. Similarly, statistics from the Ministry of Labour and Welfare indicate that there are some 73,000 beneficiaries of the state-operated National Insurance Scheme (NIS).

The second phase of the legislation, which has been pushed back a year, will deal with regulation of approved retirement schemes - the draft for which has to be written by the Tax Administration Department and Ministry of Finance, in collaboration with the FSC.

"There are specific requirements in terms of regulations to ensure that people who sell retirement schemes have the right qualifications to market these retirements schemes and ensure adequate protection to persons buying these products," said Wynter.

Conduct rules

"And there are appropriate conduct rules which have to be developed and which don't exist yet, and that is why they are a part of phase two."

Wynter said the existing law makes provision for existing retirement schemes.

"There is a handful that existed prior to the Act coming in place, and the Act contains specific transition provisions for those schemes. So once they apply on the forms that are available, they are allowed to continue doing what they are doing," he said.

Wynter said the industry had been advised early in the reform period that retirement schemes would be dealt with under phase two.

"That will be done for later this year," he said.

Wynter says the tax laws would have to be amended to accom-modate the registering of approved retirement schemes.

Tax limit

"I am not saying that no one wants retirement schemes, but it is not practical [now], because the tax limit needs to be raised," he said.

But Chambers says the industry remains vague on the details of what policymakers plan to do.

"There are a only a few approved retirement schemes that are [licensed] under the Income Tax Act, Section 44A," said the WITCO manager.

"The Financial Services Commission is not allowing the approval of new schemes and there is no clarity on whether existing schemes are being allowed to accept new members. If the latter is the case, then the authorities would be denying the whole market the benefit of the approved retirement schemes."

Prior to the passing of the Pensions Act, the law allowed taxpayers to contribute a maximum of $6,000 tax-free annually, a figure deemed inadequate. Government has proposed raising the threshold to 20 per cent of the income of self employed contributors, subject to a maximum which is to determined.

Wynter insisted that all stakeholders are properly included in the dialogue on the approved retirement schemes.

"There is a technical committee that has been meeting with the Ministry of Finance and with all the parties, basically doing consultation," he told the Financial Gleaner.

- ashford.meikle@gleanerjm.com