Who is responsible for employee benefits?
Oran A. Hall, Contributor
Recent international pressures have forced many employers to reconsider and, in many cases, to minimise their traditional role in funding or giving financial support to employee benefit programmes such as superannuation funds, group life and/or group health insurance and personal accident, or disability income replacement insurance plans.
This, no doubt, is contributing to the current growth in Jamaica of Approved Retirement Schemes for individuals, under which employees who are not members of an approved superannuation fund and self-employed persons may contribute up to 20 per cent of their income to the scheme, and to which employers may contribute, but are not obliged to.
As with most things financial, however, there is still substantial ignorance among employers and employees alike about who is (more) responsible for what.
Believe it or not, there are employers with superannuation funds and company-supported group life and other insurance arrangements for their workers who believe - and even try to convince employees - that with the company-sponsored or company-supported schemes in place, there is no need for employees to 'pressure' themselves to take on additional personal insurance policies, even if they can afford them.
The truth is that, while employer-sponsored or supported group policies and other employee benefits must be applauded and fully appreciated by employees with the good fortune to be working with enlightened or progressive and considerate employers, everyone should also understand that there is no substitute for taking personal responsibility - especially for one's financial planning needs including personal insurance and retirement programmes.
In any case, before deciding on the adequacy of what may or may not have been set up by an employer, it is necessary for each employee to be fully aware of what is in place - face value and total benefits payable, under what circumstances, and to whom, for life and other group insurance plans.
Employees who participate in superannuation or pension funds should make sure to contribute the maximum allowable percentage of salary, whether matched by the employer or not.
There are several benefits: the contributions to the fund are deducted from salary before tax is applied, the fund earns income free of taxes, the contributions are managed by full-time investment managers and contributions are combined with the contributions of other persons thereby making it possible for such contributions to be invested in vehicles that the individual would not normally have sufficient funds to invest in. In this age of defined contribution, or money purchase plans, the employee significantly improves his chance of getting a better pension.
The foregoing also applies to members of approved retirement schemes.
Employees should also be careful to seek information and guidance from knowledgeable and competent insurance and financial services practitioners in order to improve their capacity to make wise decisions based on up-to-date knowledge and understanding of how modern insurance and investment-related insurance plans may be integrated with other aspects of financial planning, such as investments and retirement planning, to enhance personal development and financial security.
Only a very small portion of the Jamaican working population now makes contributions to a formal pension arrangement. Not many of them will be able to maintain a reasonable standard of living on their pension alone. Some are creating an additional pool of retirement funds through life insurance policies with an investment or savings component.
It is critical, nonetheless, that all persons preparing for retirement establish an adequate savings/investment programme independent of their contributions to a retirement scheme or pension fund, and whatever other benefits employers provide, to enhance their prospects of having a decent retirement.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free counsel and advice on personal financial email@example.com