Tourism pension 101 (Part 2)

by Jan 27, 2022Pulse

FOLLOWING the launch of the long-awaited pension plan that will ensure tourism workers who sign up will not be left scrambling to survive after they retire, LetsTravelCaribbean.com spoke with Chairman of the Board of Trustees for the scheme, Ryan Parkes, about what comes next. His advice for the sector’s workers: If you’re on the verge of 60, the cut-off age to sign up, “run and register” before you lose out on the minimum $200,000 a year now guaranteed.

The Tourism Workers’ Pension Scheme (TWPS) will be the first time the majority of roughly 350,000 employees will be signing up for a pension. Read on as Parkes explains how it will change their lives, what they need to do now, and what questions they should be asking.

MAXIMUM BENEFIT

LetsTravelCaribbean.com (LTC): What advice can you offer employees on how to get the maximum out of the pension scheme?

Ryan Parkes (RP): As with any kind of formal investment scheme — it doesn’t have to be a pension — the key is to start early. The other component, having started early, is to make the maximum voluntary contributions possible. Based on the tax laws, the maximum you can contribute to a pension scheme is 20 per cent of your earnings.

[With the TWPS] there is the mandatory three per cent [from employees] and there’s the matching three per cent from the employer. So the employee can make voluntary contributions, up to a maximum of 14 per cent. Maybe, based on your expenses, you can’t do 14 per cent but perhaps you can do 10 per cent. Each worker has to assess his own expenses and what he can afford to volunteer. We strongly encourage maximum voluntary contribution because the more you are putting in, the more you will be reaping at the age of retirement.

When you look at the data from the Financial Services Commission (FSC), below 12 per cent of employees — which is a very low number — in the private pension scheme are part of a formal pension scheme. When you have such a dire statistic, when persons go on retirement they find it very difficult to operate. These are the people who are unable to meet medical expenses, to fill their prescription, to cope with [the] daily cost of living, so it is very important for them to seize this opportunity by participating in the scheme. It’s a once in a lifetime opportunity simply because of the [Government’s] seeding of over $1 billion to the scheme. So already, from day one, there’s a certain amount that you’re guaranteed on retirement without your even contributing a dollar. So I want to use the opportunity to encourage every single, eligible tourism worker to enrol as part of the scheme because it is the responsible thing to do to safeguard [a] more financially independent retirement.

PROTECTING THE BANK

LTC: We are encouraging employees to save for a rainy day. What is the role of the board of trustees in ensuring these savings are protected and maximised?

RP: We have a fiduciary duty to ensure that the investment asset — the pension fund — is invested and managed prudently. Our role is also to govern the administration and investment of the plan and to ensure that it is able to meet its obligations. We have to also be [found] fit and proper by the FSC, which also regulates the scheme. So we have to ensure that we comply with the law, the regulations and the requirements. We also police the investment to make sure that the hard-earned savings of employees in the tourism sector are managed well so that at the age of retirement they can reap the benefits of their hard work.

The scheme has just started and contributions are just about to come in. One of our first priorities is to look at — based on our meetings with the investment manager — how some of these funds are now going to be deployed in different asset classes that are safe and that would also give us the maximum return. That’s an utmost priority and role and responsibility of the board of trustees.

When you look at, for example, the equities market, investing in stocks is considered to be more risky than a typical fixed income instrument like a Government of Jamaica fixed income security. But when you talk about equities, there are still some safe bets. You have companies that have a demonstrated track record of performance over many years, that pay good dividends, and offer the possibility for capital appreciation. So even within the stock market, which is considered risky, there are companies with a proven track record that you can bet on and that, in and of itself, would still give you the potential for a greater return than to perhaps invest in for example, a Treasury bill.

ACTION NEEDED

LTC: Why is it important for employees approaching 60 to act now?

RP: The law stipulates that for you to be able to be vested with a benefit at retirement, you must enrol or join the scheme before the age of 60. [So if for example you will be 60 in two weeks] you need to run and register. And that entitles you to at least $200,000 per year just because of the contribution from the Government already.

Read more in Part 1

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