Growth & Jobs | Retirement planning just as important for self-employed persons

Hugh Reid, general manager, JN Life Insurance, says individual retirement schemes for self-employed persons is just as important as superannuation schemes to those employed to companies. He is, therefore, urging self-employed persons to think seriously about having a solid pension plan because of the risks associated with retirement.

Reid maintained that currently, approximately 40 per cent of Jamaicans are self-employed, with many not being contributors to the National Insurance Scheme (NIS). He added that many self-employed persons were at risk of their lives being plunged into poverty in the event of retirement, an injury, or other circumstances.

“In other cases, some persons, for example, those employed in the beauty sector, may find that as they mature in the profession, they sometimes find that younger clients are not keen to utilise their services. In such case, it’s not because they lack the skill. Rather, it’s the perception that a person at that age may not be in touch with the latest trends. Consequently, there is the possibility that persons may be forced to retire before 65,” he explained.

The general manager noted that for those who contribute only to the NIS, the NIS benefit will not be enough to give them a comfortable retirement.

“NIS benefits are currently $13,600 monthly which, based on the cost of living, is not enough to cover basic expenses. This means that persons who only contribute to the NIS will experience financial difficulties upon retirement or be forced to work again (for those who can) for additional income,” he said.

He added that although finance minister Dr Nigel Clarke recently announced an increase to the benefits paid to pensioners by the Government, whereby pension and age-relief exemptions will move from $80,000 to $250,400, this was still not enough for some sections of those who have retired.

The insurance executive said the number of Jamaicans being eligible for a pension upon retirement is low, especially with the country’s ageing population. He said more education is needed around pensions and retirement, especially for those who are self-employed.

“Investment experts say you need 40 years or more to plan for your retirement. Consequently, if you are above a certain age, no matter how much you save now, you will never be able to live the same lifestyle in retirement that you lead now because you would have lost some of the years needed to do that investment,” he explained.

“As more Jamaicans live longer, investment experts estimate that they will need to have enough money to live up to 15 years or more after retirement. Consequently, saving for retirement will ensure you are able to support yourself as opposed to depending on others. This is why the JN Individual Retirement Scheme was conceived to assist persons who are self-employed and may not be enrolled in an approved pension scheme to be able to plan for retirement,” he stated.

Reid said as the country develops additional social programmes, more thought should be given to micro pension schemes.

“There has been research locally to indicate a willingness on the part of many persons in the informal sector to contribute to pension schemes. In fact, one study indicated that as much as 73 per cent of respondents were willing to contribute to such a scheme. So this is something that could be explored by government agencies in partnership with the private sector to ensure that most of the population are prepared for retirement,” he said.

He also underscored the need for persons to ensure that they have a ready source of funds to cover their daily expenses during retirement.

“You may be saying that I have just invested in real estate, and I am going to put a room to the back. Or you might say mommy or daddy has a piece of land, and I’m going to build something on it, and that is my retirement. Nothing is wrong with that, but it is important that you have a source of liquid cash when you retire. This liquid cash will be needed when there is an emergency and prevents you from asking your tenant for the rent before the due date or borrowing or selling assets in a rush where you will likely sell at a discount,” he informed.

Reid pointed out that outside of personal benefits, being part of an approved pension scheme is beneficial to the Jamaican economy.

“Pensions provide a pool of long-term funds which can be used to invest in public infrastructure, rural and urban development and ultimately, increase the wealth of the country,” he explained.