Today’s Editorial for April 23: Think before taking pension holiday

The government’s idea of the
pension suspension, or ‘holiday’ as it is being called, was that it would save
employers money, helping to offset the hefty work permit fee increase
implemented earlier this year.

The pension suspension, which only
applies to the private sector, will allow employees and employers to opt out of
contributing a percentage of employee’s wages to an approved pension plan
provider.

There is an important stipulation
though:  both the employee and the employer
must agree to the suspension for it to take effect. If the employee doesn’t
want to stop having five per cent of his or her pay contributed to a pension
plan, and for the employer to match that contribution, then everything stays as
it is.

Some employees will look at the
suspension as pay raise because their take-home pay will increase. Excluding
health insurance deductions for sake of simplicity, someone taking home $500
per week would take home $526.31 if they opt out of the pension plan, seemingly
a 5.26 per cent raise.

However, when considering the
employer will no longer be contributing $26.31 to the pension plan on the
employee’s behalf, that employee is in reality taking a 4.76 per cent pay
cut. 

Pension plans are designed
partially to force savings for retirement. A suspension of a year or more could
amount to a great deal of money over time.

Even though the pension plans lost
a great deal after the 2008 stock market crash, almost all analysts agree the
market is ready for a big rally, meaning pension accounts will likely earn good
returns in the coming years.   This wouldn’t
be a good time to have the account principles remain stagnant.

Employees should think long and
hard before deciding to opt out of the pension programme, especially if they
don’t have another retirement plan. Somewhere down the line, most people will
probably be glad that they thought about the future rather than opting for a
little extra spending money.

People should also resist any
employer who tries to tell them they must agree to the suspension, because they
do not, and they should report any employer who makes them do so against their
will.

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