Q&A- What do I do with my redundancy and pension package?

Q: I am a 51 year-old unmarried woman. My position was made redundant 3 weeks ago after working at the company for 25 years.  I think I'm going through the whole thing of feeling dejected and slighted, though I understand the reason for the changes the company is undergoing.  But my real issue is I have now received my redundancy payment as well as my pension package, and quite frankly I'm not sure what to do with it.  I hear everyone else saying they have big plans, and truth be told there are a lot of things I could do, including paying off the 10 years I have left on the mortgage, putting some money away for my only child who will go to university in 2 years, go back to school to do the MBA I've wanted to do but didn't have the time or money, or start a small business.  This is more money than I've ever had at any one time and I don’t want to blow it. I would appreciate any advice you have.

A: First, congratulations on donating 25 of your best years to the growth and development of Jamaica’s economic activity.  While you may be feeling dejected and slighted because of your redundancy, there’s still much to give thanks for.  Your feelings are normal for most persons who are made redundant, especially if you are unaware that you would be in that batch.  It seems as though redundancy is one of the hazards of being employed in your 50s. 

Your question raises the following issues and each one will be addressed in its turn: (i) You were unaware of the benefits payable as a result of redundancy; (ii) the choices you could make at your redundancy date with regards to your employer-sponsored Superannuation Fund; (iii) what to do with your redundancy proceeds.

On your redundancy date, it was probably nice to get your redundancy check, which was calculated in keeping with the Employment (Termination and Redundancy) Act 1974.  It provides the details of the terms and formula under which your redundancy must be paid.  While your redundancy cheque is good financially, you must now plan for your future employment or retirement.  Depending on what your position was you should seek employment either locally or globally to meet your expenses and savings for your actual retirement date.  Remember, that employment is no longer limited to the borders of Jamaica but there’s also the global village and the Internet.  With 25 years experience you should have developed tremendous expertise and so should look to leverage it with another job or consulting.  Sometimes employers forget that employees do not only work for the money but for the activity and schedule and order which employment provides on a daily basis: by the sweat of thy brow you shall eat bread. Most persons when they are made redundant forget to obtain from their employer an NIS and NHT letter.  If you have not done so, please request it as the letter should provide a statement that all the contributions have been paid and therefore you should be eligible for your benefits when they are due.  So, look to the future and go out into the world of work with confidence and you will do well.

With regards to your employer-sponsored Superannuation Fund, it seems as though you were not properly informed of your benefits.  For example, at age 51 you should have been familiarised with the following: Retirement age of the Fund as stated in the Rules- each Fund’s Rules must address three (3) different retirement ages: early, normal and late.  Usually for early retirement, a plan Member becomes eligible for the annuity pension benefits if s/he is within 10 years of the normal retirement age (NRA).  Therefore, if the Rules stated a retirement age of 60 for women and early retirement is within 10 years of NRA, you could have elected Early Retirement; Vesting rule: the Rules will usually address the type of vesting – immediate, gradual or cliff; most plans usually have cliff vesting. The next feature of the vesting would be the condition: do the Rules provide for conditional or unconditional vesting?  You should have been told this important feature of your benefit.  If the Rule is conditional vesting and you withdrew all your contributions, you would have forfeited the Employer’s contributions made on your behalf.  This can be a significant sum at your age, which would be difficult to recoup in the future.  Why? You do not have the time in your work life of say 30+ years.  If the vesting was unconditional and you withdrew your contributions this means that you are a deferred member and still qualify for a benefit at retirement based on your actual retirement date.  The final vesting feature would be the period of time you were a Member or how it is defined in the Rules.  You should ensure that you know whether or not you were vested at your redundancy date.  In any case, withdrawal of your contributions at this time could really impede your ability to qualify for a meaningful pension benefit at retirement.  Therefore, it is recommended that if your cheque has not been spent that you request of the trustees to have it resubmitted to the fund, as you were unaware of this information.  Now be honest here.  If you were aware and chose to withdraw your contributions, then that’s another matter.  In any case, go back to the trustees and seek their assistance on this matter.  As a Baby boomer, you need to ensure that you have accumulated enough savings for your retirement.  Old age poverty is not something that should be planned for due to lack of knowledge.

As stated in your question, you now have a redundancy sum of money and refund of accumulated Superannuation Fund contributions.  What should you do with it?  The first thing to do is to follow some simple principles: Write down all your living expenses and debts.  If your debts are low that’s good, but if your debts are high then you may need to adjust your living standard to match your income; find out how much income your current capital can buy from an annuity or any other investment that pays a regular income such as a bond; Review your skill set to determine what can be turned into an income generating business which will not require much capital to get started; Restate your NRA as this will help you to determine whether you should establish your own business or seek other employment – full-time or part-time.  Probably you could ask your employer if you could be employed on a part-time basis; you haven’t retired as yet.  Therefore, if you get any employment, you need to continue saving in a Retirement Scheme. Give thanks and stay positive.

While redundancy can take its toll on one’s emotions, it also provides a great opportunity to retool and regain the confidence needed to start again at another level.  Enjoy the opportunity you have and give thanks.

Disclaimer: The information provided is a guide and does not purport to provide any advice on any particular financial product as a result of your redundancy.  Much more information is needed to do so.  You should obtain advice from a Financial Services Commission licensed (FSC) insurance sales representative and/or an investment advisor.

 The Team of Milestones and Lifestyle Planning Services

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