So I went to a seminar today briefing employees of my current company on the pension plan and the different investment options they offer. Now, it is my intention to leave said company, not because I hate my job, but because the management makes it a horrible place to work. I've seen them done to many things that I believe is unjustified.
Anyways, I always knew about the pension plan but I couldn't be on it because I wasn't working there long enough so this would be my enrollment year. So the plan starts on May 1st 2012 and I have the option if I want to be a part of it or not.
Let me start with the basics.
Based on my current salary, I would have to make a compulsory contribution of 2%. The company will match this 2%.
After that I am able to make voluntary contributions of any amount I choose but there is one thing. That thing is that under our current legislation, there is a regulatory limit to the tax allowable on my voluntary contributions. That is to say, the combined contributions of my employer and myself for my voluntary contributions, should not exceed 15%, otherwise it will be taxed. The company matches another 2% maximum for voluntary contributions.
In a nutshell, 2% is compulsory once I join the plan and that 2% will be matched. Any amount I invest after that will only be matched up to 2%. In total, I can get 4% in free money from employer matching.
So now, I get to the options. Three companies made presentations on there investment options. We will call these companies Fort, Sag, and Repub. They all use mutual funds for their investment plans so you have the option of selecting one of the funds and watching them grow.
Fort has 3 funds. Sag has 3 funds and Repub has 2. They are all basically structured the same way. One is high risk, one is medium risk and the other is low risk.
Fort had the best presentation overall and gave a lot of details and insight into their options. Fort also provides online services so you can view your balance and monitor your growth. Fort appears to be the best option overall and is most likely the one I am going with but I will still try and detail all the options in this post.
Fort showed spread sheet and a graph detailing how there investments did over the years. I can't copy the full spreed sheet now but I will give you a quick picture of what it looked liked.
In 2004, which would have been there best year
- The high risk fund returned 20.8%
- The medium risk fund returned 15.2%
- The low risk fund returned 5.3%
In 2008, their worst year
- The high risk fund returned -8.5%(that is negative to be clear which is a loss)
- The medium risk fund returned -1.9%(also negative and a loss)
- The low risk fund returned 4.1%(the only positive one)
Last year 2011
- The high risk returned 0.5%
- The medium risk returned 2.1%
- The low risk returned 2.3%
So as you can guess, the years in between look generally the same with rises and falls relatively being on par with how the fund was predicted to perform based on it's level of risk.
Lets look at how Sag's options perform. Sag's presentation wasn't as detailed as Fort's but they weren't bad. They didn't provide as much information on how their funds performed but they gave quick highlights. I wasn't able to note down everything properly but I will give you their predictions/expectations of the funds performance.
- Their high is projected to bring in 7-10% averagely over time based on historical data
- Their medium is projected to bring in 5-8% averagely over time based on historical data
- Their low is projected to bring in 4-6% averagely over time based on historical data
For the last company which is Repub, I'm not going to get into any details on their investment options as I will not be using them. For starters, they had a much poorer presentation than the other 2(I can excuse this though because their presenter was young and lacked much of the experience the other two had). Why I am not using them though because based on the data presented. They have never beaten any of the return rates the others were able to gain in any year, and they lagged behind by 3% or more.
Some interesting things I should mention.
- You are allowed to change the fund you are invested in once a year.
- They are no fees charged for this change and the company pays the maintenance fees for you
- You have to remain within the company for 3 years in order to take claim of the company's contribution, if you leave or you or terminated before that, you are only entitled to the amount you contributed.(this will take further discussion in a future post based on my current plans that I am thinking about modifying.)
- When you retire, you get 25% tax free and then the rest must be put into an annuity which will be paid to you in parts as a pension.
I have some time to think on my decision but I've made one already for now. So I will give you a quick run down. I am going with company Fort. Which is kind of obvious, they are kind of the best. The reason for choosing them over Sag is not only based on their presentation but also based on the fact that I have money tied up in Sag for different purposes so I don't want to put more eggs into that basket. Also, Fort has also beaten Sag year over year only doing worst in one particular year.
I am going to go with the high risk fund. Obviously based on my age I could afford to take the risk and it is advised too. Secondly I already have another retirement account in the form of my RRSP which I have no say in how it is managed but it returns a guaranteed rate of 5%(you read that correctly and it is not a scam, I guarantee you that, it's basically more like a savings account with a higher interest rate more so than an investment account. It's actually double our current savings accounts interest rate). The RRSP is held with the credit union and I contribute rough 6% of my current salary.
Based on that, I am going to invest 6% voluntarily into the company's retirement fund with Fort. This will add to the compulsory contribution of 2%, which the company will then match the first 4% which gives a total of 12% going into the company's retirement plan. So my total retirement savings will be 18% of my salary.
That isn't bad if you ask me. Here in Barbados, we also have a mandatory contribution we make to the government that we will get back a percentage of in retirement as pension. I'm not sure if that will exist when I retire but if it does, I will have three sources of income in retirement.
This is Rafiki saying thank you for your attention and we hope to bring you more stories as life goes on. You comments are welcomed. Now I am off to said job that allows me to save for retirement. Have a great day folks.