Individual Retirement Plans

Recently I have noticed that several companies are now offering individual retirement plans (IRPs). Changes to the pension legislation have now made it possible for individuals who are self employed or own their own small business to make tax free contributions to a pension scheme. This was in response to a long outstanding issue whereby these persons had no access to a pension scheme other than the NIS.

I want to encourage persons to take advantage of this opportunity as we all know that NIS will not be able to meet all of your retirement needs. The reality today is that most persons are not interested in saving towards their retirement and do not see it as an important tool for securing their future. However if you speak to existing pensioners they will admit that they now regret not having saved more.

There are now several choices available from several different companies but “how is one to choose which IRP is best?”

The most important thing to consider is the track record of the company offering the service. Consider the following issues – how long have they been managing pension funds?; what kind of returns have they generated over the years?; and what are the expenses that are associated with the IRP?

Many companies that are not experienced in fund management will spring up and offer themselves as experts but be sure to find out more about the persons who will actually manage the funds. For too long self administered pension funds have been poorly run with the employees getting little and the managers getting much. Look at the level of flexibility being offered. Do the funds go into a single fund or are there different types of funds that one can choose between. Equity funds are nice when the stock market is doing well but provide challenges in recessionary times. Read the rules governing the pension plan very carefully before purchasing to ensure that you are aware how the fund is to operate.

Remember that pension fund deductions reduce your income tax payment and the interest that is earned is tax free. It is only when you receive the pension that the income becomes subject to tax.

Feedback question: What did you do with your pension contributions which were refunded after a redundancy exercise or leaving your last job?