What is a pension?
A pension is a stream of income that is paid usually when one attains retirement age, but it can also be paid to a dependent be it a child, widow or widower upon the death of a member of the pension fund. In other words, a pension is a type of insurance against old age, reduction or loss of income to a member of the pension fund.
What is a pension scheme/fund/plan?
It is an arrangement under which an employer and/or an employee make contributions into a pool of funds set aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf, and earnings on the investments generate income that is usually used to pay a pension upon
retirement, death or termination of employment or upon the occurrence of such events as specified in the law or the rules of the pension scheme. It has
favorable tax treatment compared to other forms of savings.
Are there different types of pension scheme designs?
Yes, a pension scheme can be designed as a Defined Benefit scheme (DB) or Defined Contribution (DC)or a combination of the two types (hybrid). A DB scheme is a pension scheme where the pension benefits are predetermined by a set formula and payable for life upon attainment of retirement age, or death. For example, a fund may specify that upon retirement staff members in a certain grade will be entitled to say $20,000, subject to meeting the required period of service, among other things. Another common formula for DB schemes is as follows:
Final average salary multiplied by number of years served multiplied by a factor specified in the rules of the fund.
On the other hand, a DC scheme is a pension scheme where contributions into the scheme are pre-determined. The benefits paid to a member in a DC depends on accumulated contributions, investment returns earned on the accumulated contributions and expenses of running that fund. A hybrid combines the features of both the DB and DC schemes. For example, a fund
can have a certain portion of benefits, which are predetermined and the other portion of benefits which is dependent on contributions, investment returns and expenses. This is usually the case where there is a minimum pension benefit from the fund.
Why should I contribute to a pension scheme?
The main reason for a pension scheme is to save for retirement, but as a social protection instrument, a pension scheme also offers benefits when one loses employment as a result of ill health, death, permanent disability or just decides to take up other activities.
Who manages a pension scheme?
The Board of Trustees is the one responsible for the management and control function of the scheme. Trustees appoint fund managers, administrators or qualified individuals to perform the duties of a fund manager and administrator.
What happens to my pension when I die?
If you die while you are still an active member of the fund, your dependents or nominated beneficiaries will be entitled to your pension benefits subject to the rules of the fund and the laws governing pensions. Apart from the pension from the scheme, some schemes also offer death benefits in addition to accumulated pension. For those who have retired and are already receiving a pension, it will depend on the terms and conditions in the contract that they would have entered with the pension provider. Some contracts have arrangements where they pay pensioners a regular income until death upon
which the pension ceases. On the other hand, some contracts are such that a member is paid a pension for a certain period wherein if a member dies before
the end of that period, nominated beneficiaries will be entitled to get the pension until the predetermined period lapses. For such contracts, if one outlives the period specified in the contract, they will cease to receive the pension.
We encourage that members check with their scheme’s administrator or pension provider to find out what death benefits are payable to them under their scheme.
Is it possible to transfer my pension from one administrator to another?
Yes, it is possible. You communicate your intention to your current administrator and it can be done a n d documentation of transactions is traceable for future reference.
When can I claim my pension?
Pension benefits can only be claimed when one of the following events occurs:
- When you have reached normal retirement age as per the rules of your pension fund;
- When you have resigned or have been dismissed;
- When you have gone on early retirement;
- When you have been retrenched;
- When you leave employment for medical reasons; and
- When the fund member has died.