PLANNING for the future may help you pay less income tax in the present. This is because persons who pay more to their pension fund, actually end up paying less income tax, says Mayberry CEO Gary Peart.

The portion of your income that is paid to the pension fund and the National Insurance Scheme is not tax deductible, therefore by paying more on your pension, you actually pay less income tax.

“Given the level of taxation that we currently have in Jamaica, the ability to reduce tax on your taxable income is key”, says Peart.

“The bigger benefit is that you are putting away more funds for when you need it most, which is when you retire,” he tells Sunday Finance.

Mayberry Investments is a financial advisory firm involved in retirement planning and pension fund management, among other investment advisory services.

As of March 2008, when the Income Tax Act was amended, persons can contribute up to 20 per cent of their gross salary to approved pension or superannuation funds.

“The practice is for an employee to pay 10 per cent and this is matched by another 10 per cent contribution by the employer. In this case the employee would only be able to claim as a deductible expense the employee’s portion contributed to the approved scheme,” says Meris Haughton, director of communications, Taxpayer Support Services of the Tax Administration Service Department. Self employed persons can contribute the full 20 per cent and get the allowed tax deduction.

“In respect of self-employed persons or persons who do not have the benefit of a pension fund in their employment, they may opt to purchase an IRA (Individual Retirement Account) from a financial institution which operates an approved fund. In this case, the person would be entitled to tax-free contribution of up to 20 per cent of their statutory income,” adds Haughton.

Additionally, the amendment resulted in an increase in the maximum pensions from 66.66 per cent of final salary to 75 per cent of final salary on completion of 37 and a half years of service.

Many institutions such as Mayberry, Jamaica Money Market Brokers, Sagicor Life Jamaica and ScotiaDBG offer these retirement solutions.

“I would encourage everyone to take the maximum allowed under the Pension Act,” says Peart. He says the pensionable income that most employees amass by the time of retirement is not sufficient to maintaining a good standard of living. This is because the value of money would have fallen over time, while the contributions remained the same. Both increased contributions and prudent investment can make the difference.

“Look at the investment track record of the pension fund manager. Take a significant interest into how the money is being invested. Do not be just satisfied with contributing to a pension plan,” he advises. According to the Mayberry CEO, if your pension fund is returning five per cent interest and there are other funds that can return up to 20 per cent, then that is where you need to invest your money.