Pension is generally understood to be a retirement savings plan where one saves part of their income today to use on a rainy day, especially when one is in the “sun set” years of life.
In an earlier article, I posed the question: ‘What do we know about pensions?’ In that entry, I gave a background of the new Pensions Act which came into effect on July 1 2011 and effectively made pensions mandatory.
In fact, my article was inspired by a presentation by a professor in economics who asked us during a meeting: “What do you know about pensions?” There was laughter. From this reaction by the audience, one easily concluded that many of us were ignorant.
The professor said in one of his research findings, some respondents said they understood a pension scheme as an arrangement where government or an employer contributes funds to pay an employee upon retirement. He said some said they had never heard about the pension scheme and a third of people in urban areas, in formal employment for that matter, thought pensions were voluntary.
Today, I will share some feedback and insights on the issue of pensions as shared to me by one avid reader who, in fact, is in the pensions industry. I thought it would help many of us if I shared the same through this column:
Wrote the reader: “Good morning, A very good article on your column ‘Business Unpacked’ today. I encourage you to keep writing as this is an area that is less understood by most employees and as such many are not following or getting the best out of their pension arrangements due to lack of such information.
“I would like to ask that in a future article please do consider writing on specific information that each pension fund member needs to know about their pension arrangement.
“Equipped with such information, many individuals will closely follow how their pension arrangements are being managed and be better prepared for retirement. Regards.”
Here are some of the areas the reader indicated that as an employee or pension fund member, we all need to know:
Understanding the employers’ obligations in a pension scheme
(a). To pay in the correct contributions at the right time. Failure to do this can have a negative impact on the pension benefit levels that any member can attain. Members need to have in place a process of checking this.
(b). Employers should maintain a life insurance policy: minimum cover one x annual pensionable emoluments.
(c). For those who have been in employment prior to June 1 2011, employers should have calculated severance liability to May 30 2011, compare this with the pension benefit available at the time (i.e. if the employer had a pension arrangement).
(d). If the pension benefit (employer contribution are less than the severance liability) the employer needed to contribute into the pension fund the balance. This can be done over a period, but there is interest that the employer shoulders.
Right to information
The Pension Act has provided that each member should be provided information
- Prior to joining the fund
- Regularly (at least once every six months).”
The reader said another important area where there is a challenge is nomination of beneficiaries in case of death before pension benefits are accessed by the member.
She encouraged pension fund members should ensure that they nominate their beneficiaries and keep the records safely with the trustees
Besides, such nominations should be current. In other words, they should be reviewed regularly by the members to avoid situations where the benefits are distributed to people that should otherwise not have benefited from the pension.
What is coming out is that it is important to know that employees or pension fund members are a major stakeholder in the pension industry; hence, I would urge them to make follow ups on remittances of their deductions and seek redress wherever they feel they are getting a raw deal. Pension contributions are in preparation for a better tomorrow. n