Growth & Jobs | Make pension planning a part of the financial wellness conversation

OTHNEIL BLAGROVE, senior manager – Sales, JN Life Insurance Company, is urging Jamaicans to make pension planning a priority when planning for the future because of its importance when it comes to retirement or unforeseen circumstances.

Blagrove said with many Jamaicans who are part of the labour force not part of a pension scheme or making contributions towards their retirement, any conversation about financial literacy and wellness should involve retirement planning.

“Earlier this year, the Minister of Finance, Dr Nigel Clarke, indicated that just under 20 per cent of the population were a part of an approved pension scheme,” he stated.“Based on the data, this would be about 200,000 persons out of a labour force of about 1.1 million persons, which means that there are still some 900,000 Jamaicans who will have no protection when they retire or if there is a situation where they are unable to work again,” he added.

BIGGER BURDEN

“Therefore, the number of Jamaicans being eligible for a pension upon retirement is low, especially when you consider that the Planning Institute of Jamaica has indicated that the country’s population is aging. If more persons aren’t educated about the importance of a pension, then the country will have an even bigger burden in terms of having a social safety net in a few years,” added Blagrove.

He revealed that with the National Insurance Scheme (NIS) reporting that only about 40 per cent of Jamaicans being eligible for pension benefits under the scheme, education about the benefits of having a pension should be promoted.

“The grim reality with the NIS benefit is that persons who are dependent on this scheme receive approximately $6,800 fortnightly. The more individuals who are a part of a pension scheme, the better it is for the country and also their families because they will have funds set aside for either retirement or if they are unable to work,” Blagrove added.

The senior manager revealed that investment experts posit that individuals need 40 years or more of savings to maintain the lifestyle they currently enjoy in retirement.

“It means that if you are above a certain age, no matter how you save now, you will never be able to live the same lifestyle you lead now in retirement because you have lost some of the years needed to do that investment,” he revealed.

“Therefore, having a pension becomes even more essential since you will need money to finance daily expenses such as food, utility bills, medication, and other items as the need arises. Having a pension goes beyond having a piece of land or a house that provides income through rental. It is about having a source of liquid cash upon retirement,” he stated.

He explained that as Jamaicans live longer, investment experts estimate that individuals need enough money to live up to 15 years or more after retirement.

“Investing in a pension will also take the burden off the state in providing you with assistance,” he explained. “It will also help to grow the economy since it is money that is invested in mutual funds, stocks, and other projects geared towards improving the quality of lives of thousands of Jamaicans.”

He added that when contributing to a pension, persons should take the opportunity to increase contributions to the maximum of 20 per cent where possible.

“What the research has also revealed is that the minimum contribution towards your pension, whether it is three per cent or five per cent, will not be enough to support you upon retirement. Therefore, saving what you can, in addition to the maximum 20 per cent allowed statutory minimum, will help to increase the income you could receive during retirement,” he said.

He added that there were tax benefits associated with increasing monthly pension contributions. “If you increase your contributions to 20 per cent, you will receive valuable tax benefits, which means you will get tax relief on that portion of your personal contributions. While that is a benefit, the greatest perk will be the peace of mind upon retirement knowing that you can provide for yourself,” he said.