Pension advice for a migrant
Oran Hall personal financial advisor
QUESTION: I am 35, an employee of a company for 16 years, and about to resign in a few days time to take up a new job overseas.
In regards to my pension, is there any way I will be able to obtain the company's contribution of the pension upon resignation? I am aware I will not be able to obtain cash from the company's contribution, but it is my intention to keep my mandatory contribution and, possibly, the company's contribution at the same institution where the pension is.
If there is no way possible and I am not able to benefit from the company's contribution until my retirement, what would be the best investment advice for my pension contribution, which will be made available to me? I want to keep my contribution, as my pension, until retirement so I don't want the cash in my hands.
FINANCIAL ADVISOR: Let us establish, at the outset, that the trust deed and plan rules guide every decision of a pension fund or retirement scheme. I am, therefore, encouraging every member of these registered pension funds and retirement schemes to know what is in the trust deed and plan rules, read their benefits statement published at the end of the year, and ensure important details such as date of birth, names of beneficiaries and years of service are accurate.
With 16 years of service, by the terms of the trust deed and plan rules, you should qualify as a vested member of the pension arrangement of which you are a member.
In such a case, the contributions your employer made for you would be irrevocably assumed by you, but that would not pass to you, in cash, at the end of your employment as you have already noted.
There are two options available for treating these vested employer contributions and interest earned on them. They can be used to purchase a deferred pension for you, payable at the normal retirement age. This deferred pension will be made by an annuity in Jamaican dollars, but payment may be made in the currency of the country of residence of the pensioner, if the appropriate request is made of the trustees.
It is important that you request a deferred benefit statement from the trustees at the end of every plan year.
Alternatively, the funds can be transferred to either an approved retirement scheme or an approved superannuation fund. The former would apply in your case.
You would be well advised to alert the trustees of your intention to leave the employer's portion in the fund, and you should ensure that the trustees are able to make contact with you, by giving them current information such as a telephone number or an email address.
In cases where members wish to transfer to a superannuation fund, they should first check with the trustees of the new fund to be satisfied that its trust deed and plan rules allow such a transfer.
Retention of contribution
It is possible to retain the contributions at the institution they are at now, but you should first discuss this with the trustees of the pension arrangement of which you are currently a member.
With respect to your own contributions, voluntary or compulsory, as a general rule, there is nothing to stop them from being refunded when you terminate your employment, but you should recognise that the refunded amount may be subject to tax.
You should, however, speak to the trustees, who will advise of all available options. There may be other options as each plan is different and certain basic terms have not changed in older pension funds.
You can port your entire pension account - employer's contribution and your voluntary and compulsory contributions, and the interest earned on all contributions - when your employment is terminated. Whereas you may elect for your contributions to come into your hands, you do not have that option in the case of your employer's contributions.
Your expressed desire to retain your contributions in a pension account is sensible. The funds will earn tax-free interest in the account, but you will be liable for taxes on the portion of your pension that is above the income tax threshold when you begin to receive your pension.
Additionally, you will be removing the temptation to use your pension contributions for other purposes. Importantly, retaining your pension account will help to boost your pension at the end of your working life.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free personal financial-planning advice and counsel. Email firstname.lastname@example.org.