Law firm examines pension fund management

While Finance Minister Nigel Clarke’s March Budget announcement of increased tax exemptions for pensioners was welcome news for those invested in pension fund management plans, it’s important that persons familiarise themselves with critical aspects of their long-term investments.

The advice comes from Peter Goldson, senior partner at the law firm Myers, Fletcher and Gordon (MFG), who explained that once an individual is a member of a pension plan, “they should remember they are entitled to receive their regular pension account statements and should check to ensure their accuracy”.

“If pensioners don’t check their statements, they might not spot errors which could be addressed in good time. Raising these issues months or years later could then be much harder to resolve,” Goldson pointed out.

He stressed that trustees have a legal obligation under the law to maintain records related to a pension plan for no less than seven years. “Under the law, tax liabilities may be assessed up to six years after the year of assessment. The period of seven years ensures that the trustees will have information in any tax assessment or in relation to any claim brought by a member or former member against them.”

Goldson and Helen Liu James, another partner at MFG, were speaking at a recently hosted MFG-session titled ‘Duties of Pension Stakeholders’ held at AC Kingston Hotel, in which they both addressed the duties and obligations for various pension stakeholders such as trustees, sponsors, administrators, and investment managers, a release outlined.

Of equal importance, Liu James expounded, is that pension plan investors “note the maximum contributions that can be made to the pension plan and giving consideration to putting more voluntary contributions, as well as taking note of the vesting period of the plan”.

The vesting period is the timeline under which the member is entitled to full pension benefits under the plan, taking into account both employer and employee contributions.

“Once fully vested, the member is usually entitled to transfer all contributions made by him/her or on his/her behalf and carry over the employer’s contribution into another approved plan, including on resignation or termination, once their membership in the pension plan ends,” the attorney-at-law said.

MINIMUM SOLVENCY REQUIREMENTS

Clarke, in his Budget presentation to Parliament back in March, said pension and age relief exemptions have shifted from $80,000 to $250,400.

Pensioners, age 65 years and older, now have a total income tax threshold of $1.5 million, plus $250,000; while for those age 55 and over, it currently stands at $1.75 million.

Furthermore, individuals under 55 years of age who receive a pension from an approved statutory pension scheme, or an approved superannuation scheme, are entitled to a tax exemption of $80,000, restricted to the pension income only. For those 55 years and over, the $80,000 tax exemption can also be applied to the other sources of income.

Turning to the possibility of a pension plan becoming insolvent, Liu James noted that there are red flags which persons should pay attention to if a pension fund appears to be failing. “Some signs may be the late pay over of contributions to the administrator, or significant delays (without good explanation) in providing pension benefits to pensioners or other beneficiaries,” she noted, adding that legal counsel would be offered to both the sponsor and trustee in such an event.

“If the pension plan has failed to meet the minimum solvency requirements under the law, or the assets of the fund are unable to meet its liabilities, the client is always advised to pay close attention and to adhere strictly to the provisions of the Trust Deed and Rules of the plan,” she explained.

“In those circumstances, the plan will likely need to be wound up. Careful regard will have to be paid to the advice of the actuary as to the state of the plan and the courses which may be open to follow,” she noted. Thereafter, the pension plan will have to pay its debts in the priority order as set out under the law.”