The main purpose of the pension plan is the provision of pension benefit at retirement age. A pension plan is one of the most tax efficient ways of saving for retirement, so all eligible employees are encouraged to join.
Who can join the plan?
All full-time permanent employees who are at least 18 years old but not over 64 years and have completed at least three months' service.
When do I retire?
You normally retire on your 65th birthday. However, the pension plan allows early retirement where you retire before you reach age 65 years old. Similarly, if your employer wants to keep you on the job after age 65 years, the plan allows for late retirement.
How much do I contribute to my pension benefit?
You must pay 5% of your basic pay. This is called your basic contribution. You can also make voluntary contributions of an additional 5%. No income tax is deducted from either your basic or voluntary contributions.
How much does my employer contribute?
Your employer pays the basic contribution, which is 5% of your basic pay.
What do I get when I retire?
You get a pension paid to you for the rest of your life regardless of how long you live. The pension will be calculated at retirement using the amount of contributions made to the pension plan and the interest earned. This is a good reason to pay the voluntary contribution since the more you contribute the larger your pension will be at retirement.
There are other types of pension plans whereby your pension at retirement is based on a formula which takes into account your salary and years of service with the employer.
What happens if I leave my job?
If you have been in the pension plan for less than 5 years you will be entitled to a refund of your contributions plus interest. No withholding tax is deducted from the interest.
If you have been in the pension plan for five or more years, in addition to your own pension refund, you may also be entitled to a pension benefit based on the contributions that the employer made for you. However, the Income tax act requires that this benefit from the employer’s contributions can only be paid to you when you reach retirement age.
If I leave my job, can I transfer my pension moneys to my new job?
Yes, provided the new employer has in place a pension plan that is approved by the Commissioner of Taxpayer Audit & Assessment, and it is in your interest to do so.
If I leave the job, can I continue to contribute to the scheme?
No. You are a member of the scheme only while you remain employed to your employer.
What happens if I die?
Should you die while still in service, the employer's net contributions made on your behalf plus your basic and voluntary contributions (if any) and interest, will be paid to your named beneficiary.
When I retire, can I get part of my pension in cash?
Yes, you can take part of your pension at retirement (approx. 25%) as a lump sum tax free.
What are the tax benefits of the pension plan?
- Your basic and voluntary contributions to the scheme are tax-free.
- Interest earned on your contributions does not attract withholding tax
Can I access my pension contributions while still employed to the employer?
You cannot use your contributions as security or collateral. You cannot withdraw from the pension scheme unless you resign or retire.
If the company closes what happens to my pension monies?
If the pension scheme is terminated for any reason, then all members are entitled to their accumulated pension contributions, in addition to any other rights that they are entitled to under the Rules of the pension scheme.
Statutory Requirements
A Trust Deed and Schedule of Rules govern the pension plan. This document sets out in detail the provisions of the pension plan, and all the rights that the members are entitled to. Both the employer and the members of the pension scheme will appoint trustees.
The Pensions Act
You should be aware that the government has enacted the Pensions Act, 2004. The purpose of this legislation is to provide a proper framework for the overall management of the pension system in Jamaica and thereby protect the interest of all members of pension plans.
The Act provides for licensing of pension plan administrators, licensing of pension fund investment managers and registration of pension scheme trustees. The Act also deals with winding up of pension fund, distribution of pension plan surpluses and provides a means by which members of pension plans can call on the Financial Services Commission to investigate a pension fund if the member feels that his pension rights are being jeopardized.
With passage of the Pensions Act, phase one of the reform of the pension system in Jamaica is complete. In phase two, issues to be addressed include locking in of pensions, transferability and portability of pension rights, and vesting of pension benefits.
