THE response from a reader to last week’s Sunday Observer article “Pension Poverty For Retired Civil Servants Can Be Reduced”, has triggered the topic for today’s article.

It can be quite traumatic for some new retirees when they are notified of their accumulated pension at retirement and the reality dawned that their pension payout is woefully inadequate. Whenever changes are made to pension schemes and employment status, the onus is on the employers to properly guide employees in making the decisions that are best suited for them, by providing all pertinent information, consultation, and training where necessary. Based on my interactions with retirees over the years, it seems that there are employers in both the private and public sectors who have failed to adequately provide oversight and the necessary follow-up to ensure that their employees are absolutely clear about all terms and conditions that relate to their retirement schemes. There are also instances where employees have failed to seek clarification or haven’t read in detail signed documents relating to their retirement plans.

There are Trust Deeds and Rules that govern occupational pension (workplace pension) schemes. This is a legal document that outlines how pension funds are managed. Pension handbooks are usually issued to employees who participate in a pension scheme. The handbooks detail the benefits that the members of a pension plan will receive upon retirement. Pension handbooks represent a summary of the Master Trust Deeds and Rules and serve only to guide members regarding the provisions contained in a pension scheme. Usually approved individual pension schemes provide information folders for their members in addition to the pension handbook. The information folder covers plan eligibility, the features of the schemes, how funds are invested, benefit options upon retirement, termination of contract, fees or charges, and death benefits.

Employees who contribute to a pension plan should seek to understand clearly all aspects of their pension scheme, especially clarification regarding any pension projections and computations. All concerns should be addressed at inception. A few years ago, one of my clients sought my advice regarding her workplace pension plan. She was a new retiree and after working with a private sector company for more than 30 years, her monthly pension was $30,000. How after contributing to a pension plan for 30 years, her pension payout was so low? I encouraged her to have discussions with her former employers regarding the matter. The report from her former employers indicated that her monthly pension was reduced because, at the inception of the pension plan, she elected a retirement option that would give her children survivor benefits. This means should she die her children would get ongoing pension payments. Near four decades later, it was too late to remedy the matter. My client expressed much regret. The pension option was selected without much thought given to the implications of a reduced pension income at retirement.

She wrestled with the consequences of a lower standard of living; earning far less in retirement than she did throughout her working life. This client, however, decided to reassess her retirement plans. She could delay retirement by re-entering the workforce and investing her pension income. Therefore, instead of retiring at age 60, she could continue working up to age 65 or 70, as long as her health prevails, while increasing her short-term investments for any emergencies that may arise and growing her long-term investments to beat inflation in the future.

I implore employees to start planning for retirement early. My advice to employers is to ensure that human resource personnel engage employees on matters of retirement planning annually. Reviews are important. Retirement seminars should not be reserved for pre-retirees only. It’s not enough for employers to be satisfied that there is a pension plan in place for workers. Pension plans must be meaningful to employees who have worked hard for the enhancement and growth of an organisation.

It is recommended that employees should retire ideally at 70 to 80 per cent of their pre-retirement income annually in order to maintain a comfortable lifestyle in retirement. But if you want a retirement of leisure and travel, then replacing even 80 per cent of your pre-retirement income may still result in a shortfall. Having a retirement income of 90 per cent or 100 per cent of your last annual income may be more realistic. A diversified investment strategy, consisting of a pension plan, and other assets such as stocks, bonds, and real estate can assist in achieving your retirement targets. You can use your age as a guide as to how much to save for retirement. A professional and experienced financial advisor can guide you in this endeavour.

“Retirement is wonderful if you have two essentials — much to live on and much to live for.” — Unknow

Grace G McLean is a financial advisor at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com