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Our business is based on providing professional guidance and solutions, which means we receive many questions from clients. Check out a few of our most common inquiries below. If you can’t find the answer you’re looking for, let us know and we’ll find it for you. Every question is important to us, so don’t hesitate in reaching out.
DOES AN EMPLOYER GAIN ANYTHING BY SPENDING MONEY TO TRAIN EMPLOYEES TO MANAGE THEIR PERSONAL FINANCES?
Yes! In many ways, even though it might not be readily apparent.
Employers often seek to attract and retain quality workers through competitive salaries and benefit packages. However, before long, employees who are poor managers of personal finance become dissatisfied/disgruntled regarding salary levels and are sometimes the least motivated by a salary increase or a bonus. Poor money managers often blame inflation or the employer’s salary scales for their financial plight. At the same time, such workers experience loss of focus on the job and demonstrate lower levels of productivity. Employers who wish to gain a higher return to their investment in payroll and staff benefits may do well, therefore, to train staff in personal money management.
Also, such training might indirectly reduce pilfering of the employer’s time, resources or supplies. At the same time, it may:
Improve employee morale,
Enable staff to appreciate and more effectively utilise staff benefits, such as employee stock ownership plans (ESOP), staff saving plans, employee-group related credit union societies, vacation savings plans etc.
Empower staff to make effective use of financial services available in the general financial services market place and
Help employees to recognise the employers’ genuine concern and contribution to the welfare of employees.
A happy and financially successful employee is a very positive reflection of a company in the job market, while the reverse is true in the case of the unsuccessful employee. Particularly, at the point of retirement, a very negative and unintended message is broadcasted, when an employee is observed to be in severe financial difficulty. An employer would wish to avoid such an occurrence, as it creates a formidable obstacle to attracting and retaining new talent.
WHAT IS A GROUP PENSION FUND?
Group pension funds are funding mechanisms set up by companies to provide pensions for employees or members of the group. They can either be Defined Benefit Plans (DBP) or Defined Contribution Plans (DCP).
The Group Pension Fund is set up under Trust. It is governed by:
The Trust Deed and Rules(TDR)
The Pension Act of Trinidad and Tobago (ACT)
The Board of Trustees, which is responsible to fulfill the requirements of the above two.
The fund receives contributions from:
The employer of the group
The employees or members of the group
The Government in the form of a return of taxes on dollars ($) paid into the fund
CAN THE EMPLOYER USE THE FUND TO SETTLE OR SECURE LIABILITIES OF THE COMPANY?
Characteristics of the Fund
No. The employer cannot. The Fund is separate from the assets and liabilities of the Company/Employer.
It is a legal entity of its own.
It is subject to and controlled by the TDR and the Pensions ACT of Trinidad and Tobago (Pensions Act 1934, Pensions Extension Act 1961; Pensions Amendment (No.2) Act 2008).
It can be used only for the benefit of the members.
HOW IS THE FUND SAFE-GUARDED? WHO LOOKS AFTER THE INTEREST OF THE MEMBERS OF THE PLAN?
A number of parties look over the security of the fund and the interest of its members. The following are responsible to maintain the integrity of the Fund:
The Board of Trustees, one of whom must be a member/employee and representative of the employees.
The Accountant who provides annual accounts of the Fund's performance
The Investment Committee which is responsible for the investment of the fund.
The Plan Actuaries, who conduct a valuation of the fund every three years. This valuation assesses whether the Fund is adequate to meet its obligation to pay future benefits. Accordingly, the fund may be deemed “over-funded”, meaning it holds assets in excess of its liabilities. On the other hand, it may be deemed “under-funded”, meaning it holds insufficient assets to meet its obligations.
WHAT ARE THE PLAN ACTUARIES?
The actuaries are an independent group of qualified professionals. They conduct a valuation of the fund every three (3) years. This valuation assesses whether the Fund is adequate to meet its obligation to pay future benefits. Accordingly, the fund may be deemed “over-funded”, meaning it holds assets in excess of its liabilities. On the other hand, it may be deemed “under-funded”, meaning it holds insufficient assets to meet its obligations
WHAT IS THE PURPOSE OF THE TRUST DEED AND RULES (TDR)?
This is a legal document that governs the operation and management of the fund.
Some important details described in TDR are:
How funds must be received, managed and distributed;
The nature of the Pensions to be received by members;
The Pension Age – when pensions are to be received;
The Pensionable Salary- the final pay upon which pensions are based
The non-forfeiture benefits in case of the departure, disability or death of a member, before the receipt of benefits
WHAT ARE SOME OF THE SIGNIFICANT STIPULATIONS IN THE PENSIONS ACT OF TRINIDAD AND TOBAGO?
Some important details in the Pensions Act that you should know include the following:
The maximum pension is limited to 66.6% of Pensionable Salary
Reduced pension and Tax-Free Lump Sum to the extent of 25% of pension commuted
Pensions cannot be assigned as security against debt. Pensions are beyond the claims of creditors
"Periods certain" can be selected by pensioner as minimum guaranteed periods for pension payments, in the case of early demise: 5,10, and 15 Years
Pensionable ages can be determined anywhere between ages 50 years and age 70 years.
WHAT IS A DEFINED BENEFIT PLAN (DBP)?
The DBP defines the pension or benefit to be paid to the member or employee and assumes responsibility for funding it. The Pension is defined by a specific formula in the TDR, and the Employer is obligated to pay it. The TDR defines the following:
Pensionable Age (Pen Age)
Pensionable Salary (Pen Sal)
Pensionable Service (Pen Serv)
The Formula is stated as: ?% x Pen Serv x Pen Sal, as at the respective Pension Age.
WHAT IS DEFINED CONTRIBUTION PLAN (DCP)?
The DCP only defines the level of contribution by:
Ultimately, the member has a claim to his/her portion of the Fund (i.e. his/her “Pot”). At the Pen Age, it is used to purchase an immediate pension from an insurance company.
The size of the pension is determined by:
the amount in the Pot and
what pension it can purchase.
WHAT TYPE OF PLAN IS THE CIVIL SERVICE PENSION PLAN?
The Civil Service Pension
This is, in nature, a type of DBP but without a Fund. It is an obligation made by Government as an employer to pay a pension to the employee, which is paid from the Treasury. In short, it is paid with the tax dollars of the existing working population. Accordingly, it can be ultimately affected by the fiscal and economic condition or stability of the country.
WHAT ARE INDIVIDUAL REGISTERED ANNUITY PLANS?
Individual Registered Annuity Plans
Individual annuity plans are purchased from insurance companies and are registered with the Board of Inland Revenue (BIR) for the entitlement of tax deductible contribution status.
Individual deferred annuity plans can also be established with the Trust Company of a Bank for purposes of receiving a pension at retirement. Similar to the DCP the eventual pension is determined by
the size of the individual savings (i.e. total contributions and interest) and
the pension amount that can be purchased from a specific insurance company.
Section 134(6) Plans
This is an Individual Registered Annuity established by an employer (under sect 134(6) of the Income Tax Ordinance for the benefit of the employee; to be received at retirement.
Contributions are limited to 20% percent of Gross Income, or 33.3% of net Accessible Income, whichever is the greater.
If the above item 1 by the employer plus total personal contributions by the employee to other pension accounts exceed the above limit, the entire amount contributed by the employer becomes taxable to the employee
DOES A CONTRACTED WORKER HAVE AN AUTOMATIC PENSION PLAN?
No. With respect to retirement planning, the contracted worker is somewhat on his/her own (i.e. subject to his/her own devices). The worker receives a 1-3year contract for work and receives payment (perhaps monthly or otherwise) and a gratuity or lumpsum at the end of the contract period. This lumpsum is often 20% of the contract sum. Too often, the taxable gratuity payment finds itself financing a holiday, a new car, jewellery or at best the down payment on a piece of real estate (house).
Little does the contracted worker recognise that the gratuity is in lieu of a contribution to a pension plan or retirement account, by an employer. Hence, the contracted worker can face severe financial hardship in the future, if gratuities are not systematically invested over his or her working-life, to build financial security for the retirement years.