THE PENSIONS (SUPERANNUATION FUNDS AND RETIREMENT SCHEMES ...

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THE PENSIONS (SUPERANNUATION FUNDS

AND RETIREMENT SCHEMES) ACT, 2004

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Objects

• To provide “overall reform of the pensions system”

• “Make provision for the management of superannuation funds and approved retirement schemes and for matters connected therewith and incidental thereto”

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Scope

• Special provisions are made for specified funds of schemes – those established by law

• It is illegal to operate a superannuation fund (“SF”) and retirement scheme (“RS”) unless same is registered with Financial Services Commission (“FSC”).

• All trustees must be registered.• All administrators and investment managers

(“IM”) must be licensed.

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Licensing and Registration

• Trustees of all non-specified pension schemes must designate an administrator and IM within 14 days after termination of employment or resignation of previous administrator or IM as case may be.

• Trustee must notify FSC of designation of administrator and IM within 14 days of designation.

• Only companies having the power through its Memorandum of Association or Articles of Incorporation may be licensed as administrators and IMs.

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Licensing and Registrationcont’d

• Administrators and IMs may only be licensed if:– all the members of its Board;– its manager, assistant manager, accountant

and company secretary or the person(s) who carries out the duties of such persons; and

– its designated responsible officer

meet the fit an proper criteria set out in Act.

• In practice most schemes will probably use the same company to act as both administrator and IM.

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Fit and Proper Criteria

• No convictions of any offence involving dishonesty whether in Jamaica or elsewhere

• Not an undischarged bankrupt whether in Jamaica or elsewhere

• Employment record does not indicate that person has carried out any act involving impropriety in the handling of monies

• Must be of sound probity, able to exercise competence, diligence and sound judgment

• Must have knowledge and experience in the business of SFs and RSs and

• Not incapacitated by reason of mental disability.

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Licensing of Investment Managers

• In addition to the foregoing fit and proper criteria, an IM may only be licensed if:– it adheres to standards of sound business and

financial practices in its operations;– its affairs are managed by qualified and capable

persons;– persons employed by the applicant to deal with SFs

and RSs are qualified and experienced in the management of or investment of assets of such funds or schemes;

– it meets prescribed capital base; and– it is licensed dealer under Securities Act.

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Licensing of Investment Managerscont’d

• Same company may be designated as administrator and IM provided they are licensed in both capacities.

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Registration of Trustees

• FSC must register as a trustee in the case of a company, an applicant which meets all the fit and proper criteria.

• In the case of an applicant who is an individual, all the fit and proper requirements must be met save for the requirement that the applicant must have knowledge and experience in the business of superannuation funds and retirement schemes.

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Responsible Officer

• Every administrator, IM and corporate trustee must appoint a responsible officer (“RO”) within their company.

• RO must then within thirty days apply to FSC to be registered as RO.

• RO must do everything required:– in the case of an administrator, for the general administration of

the scheme including the keeping of records and accounts;– in the case of an IM, for the management of the funds of the

scheme in accordance with the Act and regulations including ensuring that prescribed asset investment ratios are met and reporting to the FSC on compliance.

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Responsible Officercont’d

• Failure to appoint RO = offence and where no RO is registered FSC has duty to register as RO the MD or where there is no MD, the person in Jamaica who carries out functions of MD and if no such person then person appearing to the FSC to be primarily in charge of the company’s affairs.

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Time for Appointing RO

• Act does not give time period for appointing RO whether initially or after the termination of employment or resignation of a RO.

• Presumption therefore is that it must be done immediately.

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Appointment of Actuary and Auditor

• The following are among the classes of persons who are defined as related parties and therefore cannot be appointed as an Actuary for a scheme without FSC approval:– administrator, IM, trustee or any of their directors,

officers or employees;– member;– a person, or the spouse or child of a person, who is

an affiliate of an administrator, IM, or sponsor or an employee, officer or director of such affiliate.

• Employee is defined to mean a permanent, part-time or contract worker.

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Appointment of Actuary and Auditorcont’d

• Trustees shall notify FSC of appointment of Actuary or Auditor within 14 days of appointment stating information relating to qualification and working experience of the appointee.

• FSC has power to decide if Actuary or Auditor is suitable and if it decides in the negative the trustees must terminate the employment of the Actuary or auditor.

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Requirements for Registration of SF

• Trustee, administrator and IM must be registered or licensed as case may be

• Fund must be established in Jamaica in connection with trade or undertaking carried on wholly or partly in Jamaica

• Fund must be established under an irrevocable trust• Principal purpose must be provision of pension or annuity on

retirement of members or on earlier retirement provided in special circumstances

• Sponsor must be a contributor• Pension benefit derived from sponsor’s contribution must be

paid to:– to member only on retirement; or– to spouse beneficiary or personal legal personal

representative on death of member

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Requirements for Registration of SF cont’d

• Ordinary annual contribution by sponsor in respect of a member shall not exceed 10% of that member’s annual salary or wages

• Total annual contribution to fund by an active member not to exceed 10 % of member’s annual salary

• Provision for contributions deducted from earnings of employees to be paid over to IM within one week of end of month in which deductions are made

• Terms of employment must require that:(i) each employee in pensionable post become member of the

SF; and(ii) Contributions of sponsor and member to be paid to same SF;

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Requirements for Registration of SF cont’d

• Payment to member who voluntarily retires not to commence earlier than ten years prior to specified normal retirement age of fund

• SF must satisfy prescribed minimum funding and solvency requirements• Subject to what appears below, pension rights shall not be commuted or

surrendered and shall be non-assignable save for a member allocating a portion to his spouse or dependent;*

• Lump-sum payment may be made as follows:*(i) On death of member in an amount not exceeding two years salary or

wages or an amount representing the actuarial value of member’s interest in the fund, whichever is greater;

(ii) On termination of employment other than by death or retirement, a refund of member’s accumulated contributions along with interest and an amount equivalent to appreciation in value of investment units (if any) allocated to the contributions;

(iii) On retirement, an amount not exceeding the commuted value of ¼ of accrued pension up to maximum of 12½ times ¼ of the pension before commutation;

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Requirements for Registration of SF cont’d

• Pension less than prescribed amount may be commuted in full;*• Maximum annual pension payable not to exceed prescribed limit;• Provision is made for information to be given to member (no

guidance given)• Provision that member to have recourse to FSC if he is of opinion

that benefits are being jeopardized• “appropriate winding-up provisions” to be made in trust deed or

rules• Provision for member nominated trustees on terms and conditions

as may be prescribed• Must state a normal retirement age between sixty and sixty-five

years (not specifically included in list of requirements for registration (s. 13(1)) but included in miscellaneous provision s. 33(1)).

The foregoing is not exhaustive.

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Requirements for Registration of RS

• Similar requirements as for SF however there are some differences.

• E.g. – (i) Members must be self-employed or employed in non-pensionable post and do not contribute to a SF or other RS. (ii) Annual rate of contribution of member not to exceed 20% of his/her annual income or

emoluments.• Must state a normal retirement age between sixty and

sixty-five years (not specifically included in list of requirements for registration (s. 13(1)) but included in miscellaneous provision s. 33(1)).

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Suspension or Cancellation of Registration or Licence

• FSC has right to suspend or cancel the registration of a trustee or the licence of an administrator or IM.

• Act sets out procedure for suspension. For example, notice must be given:

(i) stating reasons for suspension and right to appeal to Appeals Tribunal established under FSC Act;

(ii) requiring the person notified to remedy breach within specified time;

(iii) specify a period which the person may make written or oral representations to FSC.

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Suspension or Cancellation of Registration or Licence cont’d

• Required procedure for cancellation of licence or registration:

(i) Notice must given by FSC stating that it proposes to cancel the licence or registration as the case may be;

(ii) Notice must state the reason for proposed cancellation;

(iii) Notice must state the right of appeal to Appeals Tribunal.

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Grounds for Suspension or Cancellation of Registration or

Licence• Registration or Licence may be suspended if there is a

breach of any provision of Act or regulations or if circumstance exist which would give rise to any of the specified grounds for cancellation (see below).

• Specified grounds for cancellation include:(i) Licence or registration was procured by misleading or

false representation in a material particular or as a result of any incorrect information whether the information or not representation was wilfully provided;

(ii) Trustee, or any of the persons in relation to an administrator or IM who are required to satisfy the fit and criteria no longer satisfy that criteria and have not been removed from office;

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Grounds for Suspension or Cancellation of Registration or

Licence cont’d(iii) Administrator, IM or trustee is carrying on the business of the

scheme otherwise than in accordance with sound pension principles or practice;

(iv) Unreasonable delay in payment of a pension of benefit;(v) Administrator, IM or trustee without reasonable excuse has

failed for a period of 30 days after the due date to provide the FSC with information which is required to be provided under the Act;

(vi) Administrator, IM or trustee has been “found guilty” of fraudulent or dishonest practice;

(vii) Administrator, IM or trustee has or has been an accessory to a contravention of any provision of the Act or regulations or any condition, direction or requirement imposed by the FSC in accordance with the Act;

(viii) The breach which has given rise to a suspension has not been remedied in the time allowed by the FSC.

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Summary Cancellation

• FSC may summarily cancel a licence or registration :

(i) if the administrator, IM or Trustee fails to carry on business in the capacity in which it/he was licensed registered for a period one year;

(ii) Upon the request of any of those persons; or(iii) Upon the resignation of the trustee or RO.

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Investigatory Powers of FSC• FSC, being the regulator of the industry, has wide powers to ensure

compliance with the provisions of the Act and Rules and to investigate the activities of a scheme including the power require the provision of information.

• If FSC is able to satisfy RM (as opposed to JP) that there are reasonable grounds for suspecting that there are on any premises, specified information which was legally requested by but not provided to the FSC, the RM may issue a search warrant.

• Warrant allows for entry and search of premises and seizure and removal of books, accounts, documents and statistics.

• Items seized must be returned within two months of seizure unless criminal proceedings have been brought in relation to the seizure and then upon conclusion of proceedings.

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Termination and Winding-Up of Scheme

• Winding-up may be undertaken either voluntarily or under the supervision of the court.

• Either the FSC or the trustees may petition the court to wind up the scheme.

• Before either the trustees or the FSC may petition the court they must:(i) give written notice to the members stating the reasons for

petitioning the court; and(ii) obtain the leave of the court.

• In addition, before trustees can petition court, they must:(i) give FSC ninety days’ notice of their intention to petition the

court;(ii) obtain the approval of FSC for petitioning the court.

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Termination and Winding-Up of Scheme cont’d

• In the case of a voluntary winding-up by the trustees, they must first give FSC ninety days’ notice of their intention to wind-up and also obtain approval of FSC before taking any steps to wind-up.

• The FSC may, with the leave of the court, present a petition for winding up on the ground:

(i) that the scheme fails to satisfy any of the requirements for registration or that its registration has not been renewed and it is in interest of members that the scheme be wound up;

(ii) the administrator, IM, sponsor, trustee or RO refuses to comply with due request of the FSC for the provision of certain information and it is in interest of members that scheme be wound up;

(iii) investigations by FSC reveal that it is in interest of members that scheme be wound up; or

(iv) scheme is insolvent and it is in interest of members that scheme be wound up.

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Termination and Winding-Up of Scheme cont’d

• During the period of winding-up and until all the assets of fund have been distributed, a scheme shall be subject to the provisions of the Act – e.g. the licences and registration of administrators IMs and trustees must be kept current and a RO must be kept in place.

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Termination and Winding-Up of Scheme cont’d

• “Before the winding up of an approved superannuation fund, any outstanding contributions payable by a member or a sponsor and all contributions which were not paid over to the IM and any other amount which is due or payable to the fund or scheme, as the case may be, shall be paid to the trustee or provisional trustees on behalf of the fund or scheme.”

• Any outstanding contributions (whether of the sponsor or the members) not paid over in the case of a SF shall be deemed to be a debt of the sponsor and shall rank pari passu with employee emoluments.

• On a winding-up all active members of the scheme are deemed to be vested irrespective of age, period of membership or period of employment.

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Termination and Winding-Up of Scheme cont’d

• On a winding-up all assets of the scheme must be delivered to the trustees.

• Act provides order in which liabilities of scheme must be satisfied from assets.

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Application of Surplus

• If after discharging all the liabilities of scheme a surplus exists, trustees must employ actuary to verify amount of surplus and forward copy of verification to FSC along with proposed scheme of distribution.

• FSC shall, having regard to minimal guidelines set out in Act, approve scheme of distribution with or without amendments.

• Trustees bound to distribute surplus in accordance with scheme of distribution as approved by FSC.

• Note that FSC would have previously approved deed and rules which may have already contained provisions for distribution of surplus.

• FSC therefore has power to override provisions of deed and rules on issue of distribution of surplus.

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Miscellaneous Provisions

• Scheme must state mandatory retirement age between sixty and sixty-five years.

• Every administrator, IM, sponsor and trustee required to keep and make available to FSC all records relating scheme. Failure to keep records = offence – liable to summary conviction and fine not exceeding $1M.

• Trustees must submit to FSC Certified Financial Return relating to scheme within ninety days of end of financial year of scheme and such other report as my be prescribed.

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Miscellaneous Provisions cont’d

• Provisions for amendment of deed or rules included in Act. Members’ and FSC approval must be obtained.

• FSC may refuse approval if it is of opinion that amendments not in best interest of scheme.

• FSC may refuse approval notwithstanding that members may have unanimously approved amendment.

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Miscellaneous Provisions cont’d

• Member may make complaint directly to FSC he feels that his benefits are being jeopardized and FSC has duty to make enquiry and take steps as it considers appropriate.

• Administrator, IM, sponsor, trustee and RO has right to appeal any action decision, ruling, direction, order or proposal of FSC.

• Appeal to be made to Appeal Tribunal established under FSC Act.

• FSC has power to extend time for doing anything under the Act which must be done within specified period unless Act already provides for extension.

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PenaltiesOffence Maximum Penalty

Performing duties as administrator or IM w/o being licensed

$5M

Performing duties as trustee w/o being registered

$2.5M

Sponsoring unregistered SF or RS $5M

Failure by administrator, IM, trustee or RO who fails to make returns to FSC in time required (e.g.. Certified Financial Return)

$1M in case of individual who is trustee or RO$2M in case of body corporate

Failure by administrator, IM, sponsor or trustee to provide FSC with information within time required or upon request

$500K

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Penalties cont’d

Offence Maximum Penalty

Failure by administrator, IM or trustee to keep required records

$1M

Knowingly filing incorrect returns with FSC - administrator, IM, trustee or RO

$1M or 12 months in case of individual$2M in case of body corporate

Failure by administrator or RO to notify FSC of a person ceasing to hold post of RO in required time

$500K

Failure by sponsor to pay over to IM, contributions deducted from salaries or wages of members within 14 days of end of month in which deduction is made

$3M

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Penalties cont’d

• General penalty – contravention of any provision of Act for which no penalty is provided - $3M or imprisonment for 2 years (maximum)

• Some penalties are likely to change given the recent position taken by the Senate in refusing to pass the Regulations.

End of presentationPaul Tai May 27, 2005