Oran Hall | Why some deferred pensioners miss out on their pension

QUESTION: I would like you to take a look at the fact that many people who contribute to pension plans never benefit from the employers’ contributions on reaching retirement. These are people who resign from their jobs, get their contributions refunded, but are unaware that they are vested in the employers’ contributions usually after being a contributor for 10 years. This means all this money remains in the pension fund, and in some cases, creates large surpluses. I worked in the life insurance industry for years and am fully aware of the situation.

– Stewart

FINANCIAL ADVISER: A friend shared with me recently that he is looking forward to receiving three pensions when he retires – one from the pension plan of his current employer and the others from the pension plans of his two previous employers. He clearly has made it his business to know about the arrangements in place to provide pensions for himself when he retires.

He is a deferred pensioner twice because there are two cases in which his employment ended and he was a member of the pension plan. He was vested in his employer’s contributions but had not reached the age of retirement at the time his employment contract ended and will thus receive a pension from each at the normal retirement age.

Unlike him, there are people who are not aware that they may qualify for a pension from their former employer’s contributions to the pension plan on their behalf. One point that needs to be made clear is that such contributions continue to earn interest as long as they remain in the plan, meaning that deferred pensioners could conceivably receive a reasonable pension in such cases.

The fact that some people change their employment many years before the normal retirement age, even in cases in which they are aware of their employer’s contributions, may be responsible for some individuals seemingly forgetting about their deferred pension.

In any case, every member of a pension plan should make an effort to know certain basic things about their pension plan. They should have an up-to-date copy of the plan rules or members’ handbook and ask the trustees or employer for access to the trust deed although such access is not likely to be physical.

It is critical because although there are many common features of pension plans, there are terms and features that may be unique to a particular plan. Thus, the same situation could conceivably be handled in different ways in two different pension plans.

Before parting company with an employer, it is important to know what the pension benefits are. For example, employees should check if they will be eligible to benefit from the employer’s contributions and if there are other benefits in cases in which the employees get a refund of their contributions.

After parting company with an employer, a deferred pensioner, being a member of the pension plan, should maintain contact with the pension plan, including advising of address changes and attending meetings and exercising all voting rights like the other members.

There are other actions that the deferred and other pensioners should take, for example, naming a beneficiary to whom benefits would go in the event of death. Where this is not done, a will should be made stating to whom the money should go.

It is also important to have ongoing family discussions to keep key family members informed. Somebody should know where the relevant documents are to reduce the risk of them getting lost. Key family members should know the names of the employer and pension plan. Considering that it is possible for these to change, the pension plan member should make every effort to be current where these are concerned.

Sharing information can also reduce the risk of the benefits not reaching the hands of plan members if they migrate and forget about their pension plan or if ill health reduces their ability to function fully.

The case of dementia is a very serious example, and motor vehicle accidents can seriously impair the pensioner and disturb the flow of pension payments, particularly if communication with the pension plan is broken. And in the most extreme case, there should not be a case where a pension plan member dies and family members are unaware of the approved pension arrangement.

Another situation which can cause deferred pensioners to miss out on their pension benefits is an employee leaving an employment with bad blood, which may cause the communication lines to be severed leading to pensions not flowing through to the person when they become due. The deferred pensioner should find a way to remain on the radar.

The law requires the administrator and trustees of the pension plan to make every effort to locate the pensioner for whom there are unclaimed benefits, for example, by advertising in the media. If there is no response, the money remains in an active plan earning interest, but in the case of a plan that has been wound up, the money goes to the Supreme Court from which any subsequent claim must be made.

Members of pension plans must take some responsibility for knowing their rights and for securing their pensions, and the sponsors and the administrators of the plans also need to step up their education efforts.

For answers to specific questions relating to pensions, it is worth making contact with the Financial Services Commission, which may be reached via email: pensions@fscjamaica.org or enquiry@fscjamaica.org.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com