Growth & Jobs | Take a leap of faith – contribute the maximum towards your pension

SENIOR MANAGER of Sales at JN Life Insurance Company, Othneil Blagrove, is urging Jamaicans who contribute to an individual retirement scheme or superannuation fund to take the ‘leap of faith’ and increase their contributions to the maximum of 20 per cent of their earnings, where possible.

Blagrove added that in addition to the maximum amount having tax benefits, there is also the long-term advantage of a better quality of life during retirement. At present, the law allows for a maximum of 20 per cent of earnings that can be contributed to an individual retirement scheme.

“Workers who are a part of a pension scheme or superannuation fund should increase their contributions to the maximum of 20 per cent, where possible. At the minimum of five per cent contribution, your pension may not be enough to support you upon retirement,” he informed.

“We must remember that although there is the National Insurance Scheme (NIS) benefit, which some Jamaicans also contribute towards, this amount will not be enough to give you a comfortable retirement. Therefore, saving what you can, in addition to the maximum 20 per cent allowed, will help to increase the income you could receive during retirement,” he added

Blagrove explained that contributing the maximum had benefits.

“If you are contributing the maximum amount, you will maximise your tax benefits, and you will actually save more, which will result in a higher pension payment when you retire,” he stated. “Your contributions are tax-deductible; therefore, your contributions are taken from your gross income before income tax and all other statutory taxes are calculated.”

The senior manager explained that a contributor who began planning for retirement at age 44, who was earning $800,000 per year and contributing at five per cent, would have accumulated $1.5 million at retirement, assuming a five per cent rate of interest. He informed that a contributor earning that same $800,000 and contributing 20 per cent would, on the other hand, have accumulated about $11.8 million at retirement.

Apart from more benefits at retirement, Blagrove emphasised that there were tax incentives to be earned from contributing to an individual retirement scheme.

“Also, by increasing your contributions to 20 per cent, you will receive valuable tax benefits on your contributions, which means that you will receive tax relief on that portion of your personal contributions,” he explained.

He added that with more Jamaicans living longer, there was a need to ensure that there is proper retirement planning.

“Investment experts say you need 40 years or more to plan for your retirement. Consequently, if you are above a certain age, no matter how much you save now, you will never be able to live the same lifestyle you lead now in retirement, because you would have lost some of the years needed to do that investment,” he explained.

“As more Jamaicans live longer, investment experts estimate that they will need to have enough money to live up to 15 years or more after retirement. Consequently, saving for retirement will ensure you are able to support yourself, as opposed to depending on others,” he stated.

Blagrove pointed out that retirement, if you live long enough, is not a choice, it is a must; and therefore, preparation is necessary.

“Retirement is not an option,” he affirmed. “It is the road we all have to take one day as long we are alive. It is worth the sacrifice to contribute at least the minimum amount. Yes, contributing the maximum amount of 20 per cent now may be a bit challenging now, but look at the fact that you will need an income when you retire. You do not want to depend on other persons at that time,” he affirmed.