Ashford W. Meikle, Staff Reporter
Sunday Business: Generally speaking, what is the biggest misconception Jamaicans have about pensions?
Carl Aldridge: The biggest misunderstanding that Jamaicans have is that [it] is far away or not important. What is happening is that we are living in a fairly young society. As a nation we are still relatively young and we don't recognise that pension is an important matter. If there is any good thing coming out of the pension reform that the government and the Financial Services Commission and its agents are pursuing is that there is an increased importance among the general public about the importance of pensions. There wasn't as much before ... only a few people, the actuaries and some
others were particularly concerned. I think more and more, it's coming into the fore. More and more people recognise that it is something to be considered.
So, part of your financial plan, regardless of your income and stage in life, should be to put aside some money for your retirement.
SB: What is the role of companies like Guardian Asset Management in assisting in the pension planning process?
CA: Guardian Asset Management offers a range of different financial service. We offer portfolio management, investment advice, we act as securities dealers, financial planning and pension fund management. We mange in excess of $10 billion, either directly or indirectly. We are making strenuous efforts in the area or individual, private pensions.
SB: What are the options for someone who is self employed? How can you assist this person?
CA: At this time there is a recognition that there is a loophole in the system and changes are being made to accommodate that. The availability of a product is somewhat limited. I think the authorities recognise the problem and I think that there are some efforts - some argue that it is not moving fast enough - but there are some efforts towards including in the reforms changes to allow self employed individuals to be able to their own pension. Because as you can well recognise , as country you cannot be discriminating against different individuals. The opportunities that are available to the person who is employed must also be employed to the person who is self employed.
For self employed persons there are vehicle such as government tax free bonds, capital gains on stocks are not taxable so your dividends are no longer taxable. Even on the fixed income side you can invest in a product we have Guardian called Fortune Five that allows you to invest the money in interest bearing securities and not suffer any withholding tax.
The problem with the individual pension is that you cannot get the tax-free deductions before the tax is applied to your income. But once the contributions have been made, there are reasonable ways you can use to avoid the tax.
SB: Would you encourage individuals to contribute more than the required five per cent?
CA: My advice to persons is that they should contribute the maximum they can to their pension funds. The more you can put in their, the better because while it might seem up front to be a reduction in your current income, it isn't because what is happening is that you are able to put that money towards your pension because we will all retire at some point. That's an important thing that we need to recognise - everybody will retire, you are going to get old one day. And I don't think a lot of people recognises that. I mean it seems so simple but a lot of people don't recognise this: that there is going to come a time when you are going to want to not work.
SB: More and more companies are switching from defined benefit pension schemes to defined contribution. What are your opinions on this?
CA: It's a worldwide trend. It doesn't happen in Jamaica alone. It happens because of the cost of running a defined benefit plan, because of the competition that companies in Jamaica are now facing from overseas companies and so one so they have to try and cut their costs. Ultimately the defined contribution plan is less costly plus the risks that are faced by the employer are also lower under defined contribution because they can plan for exactly how much their pension expense is going to be.
Defined benefit plans still have their place. They can be used as human resource tools. By enriching a defined benefit plan, you can actually improve your staff retention rate, you can attract better quality staff especially in a competitive environment.
The defined contribution in the strictest sense of the word it means that employees would have to take more and more responsibility for their own retirement panning. In the defined benefit plan ultimately it's the employee who is going to be concerned about the investment performance because regardless of what it is, he is going to have to make up the deficit and keeps the promise he made with the employee once the employee reaches retirement. But with the define contribution he has no such obligation because it is up to the employee to ensure that the best investments are selected so that the terminal value of the portfolio at retirement is as high as possible.
