Keeping informed on pensions
Published:Sunday | December 26, 2010 | 12:00 AM
Judi-Anne Marzouca, Guest Writer
One feature of the pensions act and its regulations instituted between 2004 and 2006 is a requirement for all members of a pension plan to be provided with information on a periodic basis.
The law stipulates that three documents must be prepared and submitted to members. They include: annual member statements; members handbook; and
An annual report.
Firstly, there are individual member statements that are distributed to members within four months after the end of the plan year.
The member statement—also called benefit statement—indicates both the current and accumulated contributions made to the plan and the interest earned.
Also included on your member statement is a projection of your pension at your retirement date. Based on actuarial assumptions, estimates are made of the benefits that would be payable once you continue in the plan to retirement date. This is a good indication of how well you are preparing for retirement.
You have the opportunity where the projected benefits vary greatly from the maximum income tax allowable pension to take the necessary steps to improve/maximise your actual pension at retirement.
Voluntary contributions
Here are some of the things that you can do. Ensure that you are making the maximum additional voluntary contributions (AVC).
AVC's are an ideal and tax efficient avenue towards increasing your pension at retirement.
Ensure that you have the maximum service in a pension plan, called pensionable service. In order to earn the maximum pension you must have been a member of a pension plan for 37.5 years.
If your pensionable service is reduced, your maximum pension at retirement will be reduced accordingly.
An ideal way to achieve this, if you are changing employers is to elect to have your contributions moved to the pension plan of your new employer, termed porting.
Not only is money transferred to the pension plan of your new employer but your pensionable service from your past employer is also transferred.
Your member statement also shows the beneficiaries on record and we recommend periodically reviewing and updating this information as your personal circumstances change, for example, the birth of a child, marriage, divorce, or death of a named beneficiary.
All members have access to the members' handbook. The handbook provides a simple outline of the benefits provided by your pension plan.
It is also a reference of the Trustees and key service providers; such as the name of the investment and administration managers, auditor, actuary and attorney-at-law.
We strongly recommend that persons take to time to read the members' handbook towards gaining a better understanding of the numerous benefits provided by their pension plan.
An annual report is also provided for members nine months after the end of the plan year.
The annual report highlights not only the administrative aspects of the plan, but also details its the financial performance with an historical perspective, compared to important investment benchmarks, the demographic profile of the plan, and a synopsis of the investment strategy and the investment and economic climate.
Positive trend
In addition to these regular reports, your member nominated trustee attends trustee meetings and can be engaged to discuss your concerns and answer questions regarding the pension plan.
There has also been another positive trend of trustees having member meetings, whereby the service providers are invited to meet with the members on a periodic basis to discuss varying pension matters.
The administrator, investment manager and actuary would have the opportunity of speaking to members regarding their mandate.
Members can also request and view the following documents of the pension plan:
"The trust deed and rules, which governs the operation of the pension plan and sets out the rules and benefits;
"The actuarial valuation, which highlights the financial standing of the pension plan;
"The policy documents, which states the policy of the trustees regarding conflict of interest, dispute resolution, anti money laundering and the investment policy of the pension plan; and
"The audited financial statements, which highlights the investments of the plan.
These changes to the pensions landscape are indeed welcomed considering the challenges pension plans and their members previously faced, especially the happenings of the pre-Finsac era.
It is hoped that members will use this information to make better decisions regarding their retirement nest egg and also become more involved and engaged in the affairs of their pension plan.
Judi-Anne Marzouca is Pensions Administration Manager at Prime Asset Management Limited.