Column: 10 Common Questions About Pensions

[Written by Carla Seely]

Let’s get real. The subject of pensions and how they work isn’t the hot topic during a Friday night happy hour with your friends or colleagues, but oddly enough, I seem to get asked the same questions quite frequently, which makes me think perhaps a lot of people are actually unsure.

Here is the list of the top 10 questions and their answers, which hopefully will provide more clarity.

1. Why are you forcing me to enrol in a pension?

• The Pension Act was written to ensure every Bermudian sets aside money for retirement. The money that is contributed during your working years will help provide you with income during your retirement years.

2. At what age can I start accessing my money?

• The Pension Act states retirement can start as early as age 55 as long as you have completely stopped working – that means you are not working full time, part time or on a casual basis. For most of us, the standard retirement age will be 65, which means you can start to regularly draw from your pension [within the perimeters set] and apply for social insurance benefits.

3. Can I receive my money as a lump sum at retirement?

• No, a pension is a pension for life and will be drawn over the course of your lifetime. There are several options to choose from, and your pension provider will go over all the details with you to determine which will best suit your needs.

4. Can I add extra money to my pension?

• That depends on the type of pension and how you put the extra money in. If you have an individual pension plan, you can set up a standing order each month to put money into your plan [just let your pension provider know]. If you just have a company pension plan, check with your HR department to confirm the plan allows for AVCs [additional voluntary contributions]. If they do, have your HR department take the additional amount off your pay cheque each month and it will automatically be allocated into your pension. It is important to note that these additional contributions are voluntary, i.e. they are not locked-in.

5. How much do I need for my retirement?

• Unfortunately, there’s no simple answer to that, no magic number. However, to give you an idea, most people tend to need approximately 75% of their final year’s working income as an annual draw during retirement. A great tool to start crunching numbers here and click on retirement planner.

6. What happens if I die during retirement or while I am working?

• During the course of your working years, your pension plan will have a listed beneficiary, and in the event of premature death, the funds will be paid to whoever you have listed as the beneficiary as a lump sum. If you have listed a child under the age of 18, make sure to include on the form a trustee who will take care of the funds until the child comes of age.

• When it comes to your retirement years, it will depend on the type of payment you chose. There are several annuity products that are “life only”, meaning no beneficiary. Needless to say, make sure you completely understand what type of vehicle you are using at retirement.

7. What happens if I lose my job or switch jobs?

• If you are no longer working for the company, regardless of the reason, you will need to leave their company pension plan. You will have two choices with your pension: if you have moved to another company, request to have your pension rolled over into the new company’s pension plan. If you have not found work, you will need to open an individual pension plan and have those funds rolled into that. Make sure to chat with the current pension administrator to discuss your options.

8. How can I get more information regarding pensions?

• If you are looking to understand more about pensions, I always suggest visiting the Pension Commission website – www.pensioncommission.bm It will provide you with the necessary information regarding pensions. If you are looking for more information specifically about your pension, it is best to contact your pension administrator directly or your HR department, who can advise accordingly.

9. How should I invest my money?

• When you’re thinking about investing through your pension, you should first consider your time horizon and risk tolerance. If you are planning to retire in 5 years’ time, then you shouldn’t be looking at anything too aggressive, but you if plan to retirement in 20 years’ time, then perhaps you can afford to take more risk because overall you may get a better rate of return on your money. What you really need to do is sit down with your pension plan provider and have a candid conversation regarding your investments and what your retirement goals are.

10. Once I pick an investment within my pension, do I have to stick with it?

• No, circumstances change during your life and your investment selection and strategy should change accordingly. You should change your allocations as you slowly get closer towards retirement, moving from a more aggressive strategy into a more conservative strategy. There should be no restrictions on switching investments, and talking to your pension plan provider is essential.

At the end of the day your pension is your retirement savings, and the more you understand “the how, then when, and the why”, the better equipped you are to make sound retirement decisions.

- Carla Seely is the Vice President of Pension and Investments at Freisenbruch-Meyer. If you would like any further details, please contact her at cseely@fmgroup.bm or call +1 441 297 8686.

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