Back To Basics: What You Need To Know About Pensions
Via Jamaica Observer
Pension and retirement are often spoken about in the same vein when people are talking about or planning for the future, but how much do we really know about pension and planning for retirement?
LaToya Mayhew-Kerr, vice-president, general manager and employee benefits administrator — pension services for Sagicor Group Jamaica, shared with All Woman some fundamental information we all need so we can be better informed and plan accordingly.
So, what exactly is a pension? Mayhew-Kerr explained that a pension is a monthly income that is paid to you once you have retired, and continues to be paid for as long as you live.
“Having a pension is a safety net and provides peace of mind when you retire,” Mayhew-Kerr said.
But how does one come by having a pension in the first place? The expert pension administrator informed that almost anyone in the workforce can contribute to an approved pension arrangement. She explained that there are two main types of approved pension plans — the approved superannuation funds (for employers' pension arrangements) and the approved retirement scheme (a pension plan for the self-employed and individuals who are not a part of an employer's pension arrangement).
Mayhew-Kerr noted that it is important for people to understand the difference in the two plans. The approved superannuation funds is the pension arrangement most employers have in place. Typically, employers with this type of plan require that their full-time employees make a mandatory contribution to the plan as a condition of employment. In these instances, for example, an employer may contribute X per cent and the employee contributes a mandatory X per cent. By law, the maximum allowable contribution that can be made in any year to a pension plan is 20 per cent of someone's annual remuneration/salary.
“At Sagicor, we strongly encourage people who contribute to an employer pension arrangement to contribute up to the maximum 20 per cent, as it has great tax benefits,” she said, noting that pension contributions are deducted from your salary before tax is applied, hence you pay less in income tax, while putting more money away towards retirement.
Mayhew-Kerr also added that all interest earned in an approved pension arrangement is tax-free and, upon retirement, you can access a tax-free lump sum of up to 25 per cent of your account balance, subject to certain limits.
“It is a win-win for you if you contribute the maximum,” she said.
For people who are self-employed, part-time or who are not part of their employer's approved superannuation fund (if they have one), they can join an approved retirement scheme. Unlike the approved superannuation fund, in an approved retirement scheme there is no mandatory contribution rate (but they must contribute at least once annually) and the individual is also allowed the opportunity of making contributions of up to the maximum of 20 per cent of their annual remuneration, similar to someone enrolled in an approved superannuation fund.
Additionally, the Pension Act allows for people terminating from an approved superannuation fund to transfer their pension benefits into an approved retirement scheme. To contribute to an approved retirement scheme locally, you must be a Jamaican resident (residing in Jamaica for at least six months each year), be at least 18 years old, be gainfully employed and not contributing to an approved superannuation fund or another approved retirement scheme.
She also shared that while people can save and/or invest money separately for retirement with a commercial banking or investment institution, it should not act as a replacement for a pension.
Whether you plan to retire early, retire and travel the world, spend time with your grandchildren or spend your days in a mountainside cottage reading or lazing by the pool in your retirement home, it is important to have a plan in place — and you can't think retirement without thinking about pension.
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