Pension funds are being encouraged to make investment decisions that better preserve value for pensioners, who are dependent on their capacity to manage risk.
The private pension market was valued by the Financial Services Commission at $703.2 billion, reflecting a continued slide in asset values in 2022.
Contrastingly, in 2021, pensions were valued at $713.35 billion.
“The decline in private pension assets reported by the Financial Services Commission has raised concerns for pensioners who depend on these assets for their retirement income,” said CEO of VM Pensions Management Limited Natalie Bennett.
In its analysis of the new data, FSC said that globally, real estate has been one of the best performing asset classes over the period, which occurred within the context of them providing greater income and yield opportunities than other asset classes.
Economies of the world are projected to lose steam this year – global growth for 2023 was last forecast at 1.7 per cent by the World Bank – and there are still fears in some places of looming recessions, which portends more volatility in the capital markets.
The FSC noted that while there is no similar fear of a recession in Jamaica at the moment, it would be prudent for pension trustees to “develop and execute investment strategies that will mitigate the effects of any form of possible economic downturn”.
To address the decline in asset values linked to volatility of the Jamaican capital markets, Bennett said fund managers should consider diversifying their portfolios across different asset classes and geographic regions.
“They should also conduct in-depth research and analysis to identify undervalued assets and increase portfolio exposure to blue-chip JSE main market value and junior market growth stocks. By doing so, they can ensure stable, long-term growth, while carefully managing risk,” she said.
The top three pension asset classes in 2022 were pooled arrangements, $274.4 billion; stocks and shares, $151.2 billion; and Government of Jamaica securities, $146.41 billion. Pooled arrangements experienced a small uptick in value, but the other two asset classes shrunk between three and five per cent.
But the VM Pensions executive said certain asset classes, such as real estate, experienced growth during the volatility.
“It is crucial that pensioners are not unduly affected by market fluctuations,” said Bennett.
“The FSC’s report highlights the importance of pension fund managers diversifying portfolios away from volatile assets and conducting in-depth research when investing contributors’ assets. This will ensure that pension assets remain stable and grow over time, providing the necessary financial security for pensioners,” she said.