Home' Trinidad and Tobago Guardian : August 24th 2014 Contents AUGUST 24 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
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amounts over the two different periods.
Ramsingh also revealed a middle road
between defined benefit and defined contri-
bution that he said Global Finance Ltd. is
advising companies to take, that of hybrid
These are plans that have an individual
account for the employee and a corporate
account for the company. Ramsingh said that
Section 134:6 of the Income Tax Act makes
allowances for plans under the hybrid model
to have companies create these two separate
When someone leaves a company which
has this plan, Ramsingh said while they are
free to access the funds in their individual
account, they are not allowed to touch the
corporate account. Funds from that will only
be paid out when the person reaches retirement
How your pension plan affects your op-
Ramsingh said that the Board of Inland Rev-
enue and current legislation allow portability
of defined benefit, defined contribution and
hybrid plans to some extent, if, an employee
chooses to leave his job and carry his contri-
butions with him.
The Chief Financial Officer of one major
company the Sunday BG spoke with said at
his company, which has a defined benefit plan,
employees need to be working for at least a
year to qualify. He said if an employee decided
to leave, the standard with most plans was
that there was a period after which, one would
not be able to withdraw funds. He illustrated
using an example from his own career, where
after 15 years at his previous firm, he was not
allowed to cash in his plan, but has to wait
for his retirement.
He said a standard period by which one
became ineligible to cash out a pension was
usually 5 years.
He expressed skepticism about moving the
"I don't know if that is practical...You are
going to go into a plan that has been performing
before you joined the company, the plan might
have a surplus, the plan might have a deficit,
you don't know, I just think that if you come
with your lump sum of $50,000 and drop it
into a brand new plan, if it has a deficit, you
might be funding that deficit. If it is in surplus,
what portion of that surplus will you be entitled
On this point, Ramsingh said, if the employ-
ee had confidence in the performance of his
old company, they could leave the money in
the plan until their retirement.
"If you are at Republic Bank, the plan is in
surplus right now and they have done con-
sistently well. One can contemplate leaving
what is there, if one goes to another company
and one can start your new plan."
A choice to carry the plan could kick start
a long and onerous process though, between
the Board of Inland Revenue, the former
employer and the new one, particularly with
defined benefit and defined contribution plans
"You will have to get approvals from the
entities involved to allow the shift to take
place. Whether it is Republic Bank or whether
it is the new trustee of the entity you are going
to. You will have to have approval to say that
you are willing to transfer this amount and
how much the amount is. Board of Inland
Revenue will have to get involved and then
they will have to give the approval that they
are getting involved. They will have to give
the approval that they are authorising this
(the transaction). Those things take a while.
Eventually, the bank will cut the check and
they will transfer it to the new entity."
Ramsingh said with a defined contribution
plan, there may even need to be the actuarial
certification of the details of the account before
the transfer could be affected.
Movement under hybrid plans is much easier
according, to Ramsingh. He drew another
example with one of Global Finance's clients
Repsol, for whom Global recommended the
Worley Parsons, you can transfer the policy.
What happens is that the ownership changes,
but what never changes is that this is for the
benefit of the employee. So there is mobility
to transfer the name, the owner."
He also said if people leave to form their
own businesses, under a hybrid plan, they
could even assume ownership of their own
Ramsingh emphasised that what happened
in actuality spans a range depending on the
companies involved, their respective cultures
and the rules of their various plans.
The Global Finance CEO said there were
things to be aware of when considering cashing
out your pension.
The use of the lump sum was one of them.
Ramsingh said most people used their lump
sums for current expenses forgetting that they
now have no pension to support them when
they are older.
"Look at Caroni workers. When they got
the lump sums, very few of them, dealt with
these lump sums in a responsible manner.
Invariably, they have been dissipated and for
a variety of reasons. On liming, on cars, and
this, because most people wouldn't have gotten
a lump sum before in hand."
He said from a recommendation standpoint,
Global usually does not advocate giving
employees full access to their pensions before
The CFO the Sunday BG spoke to also raised
the issue of taxes.
"If you do decide to withdraw it, to take
it out, you will be subject to taxes on it because
you would have gotten tax benefits at the
time of investing. Now that you have taken
it out, the Board of Inland Revenue is going
to assess it and is going to tax you on it."
Allyson West, a partner at PWC, specialising
in tax matters, said withdrawals from pension
plans are taxed at 25 per cent. Recent legis-
lation has standardised this amount. Legislative
changes have also made it possible for indi-
viduals to have free transfer of their company's
contributions. She said while portability for
defined benefit, defined contribution and
hybrid plans was theoretically possible, in
practical terms, most plans will have to be
amended individually to accomodate this.
Ramsingh also said consideration had to
be given to other instruments the cashed out
lump sum could be invested in, the charges
involved and the return on investment and
whether this would in fact be better outside
of the original pension plan, from which it
He introduced the concept of front end
loads that may apply if one decided to invest
in an insurance product for retirement.
The front end load are deductions made
from your policy to take care of things like
the cost of administrating the policy and com-
mission payments to agents.
"In terms of what is allocated to grow for
you, it might be 30-40 per cent of your initial
payment. There are some companies that
have chosen to go the way of what they term
to be 'no load'.
But there is no free lunch. There are back
end charges. When you get to the point of
accessing funds, the annuity factor (on no
load products) is far lower than the ones with
front end load. For examples, putting an annu-
ity factor, let's say of 10 on the front end load,
on the ones that are no load, they may give
you 5-6. What that translates into is less
money for you at the end."
According to the investment site Investopae-
dia, the annuity factor is a formula used to
determine withdrawals that can be made from
a plan, without incurring penalties
Continued from page 6
"Look at Caroni workers. When they
got the lump sums, very few of them,
dealt with these lump sums in a
responsible manner. Invariably, they
have been dissipated and for a variety
of reasons. On liming, on cars, and
this, because most people wouldn't
have gotten a lump sum before in
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