No matter how idyllic retirement seems from the distance, when you are staring it in the face, it can be a nerve-wracking experience. Doing so in a pandemic can leave you shaking in your shoes. If you are among the 15% of working Jamaicans who are contributors to a pension plan, the good news is that you are guaranteed the benefit of a steady monthly income long after your days of office life have ended. However, the rules that govern retirement plans can be as diverse as the route taken to retirement. It is these rules of the plan or its by-laws that determine the value of your annuity payments over the long term. We therefore recommend getting very familiar with them.
Simply put, if your transition to retirement is precipitated by redundancy or early retirement as opposed to the natural aging process, the benefits received under the same pension plan can look quite different.
Different Plans Different Results
Another factor to consider is whether you participate in a direct contribution or direct benefit plan. An individual retirement scheme typically falls under the direct contributor category while a sponsored plan or superannuation fund typically falls under the direct benefit category. Combined, these factors along with the length of time you’ve been a participant in your plan, and the amount of money saved, will determine how much you will receive each year from your plan or for your annuity. Your annuity or yearly salary is based on actuarial calculations made by your insurance company and is paid from revenues generated from a carefully composed investment asset mix including stocks.
Locally, investments made by pension funds are governed by clear guidelines from the regulator – the Financial Services Commission – which include concentration limits on investing in any one company or group of companies, limits of investments in related entities etc… all to ensure that the funds are able to remain solvent in spite of value fluctuations over time. Despite these parameters, however, annuities for pensioners that will be started within the next six to twelve months will be affected by the downward trajectory of the stock market.
So what are your options?
Delay Your Annuity
Well, if you have selected an early retirement package or have been made redundant and have another revenue stream, it may be worthwhile to consider rescheduling the commencement date of your annuity. Alternatively, if you are now of pensionable age and are so inclined you may opt to delay the start of your pension benefits until a later age. Some plans may allow you to remain invested until age 70. These are unprecedented times but if you are one of the 2 in 10 working Jamaicans who have been saving in a retirement scheme you will enjoy the reward of the fruits of your retirement savings long into the future. Cheers!