Michael Bernard, managing director of Carreras Limited, at the Mayberry Investment Forum, February 28.

Susan Gordon, Staff Reporter

Carreras Limited said last week that it would be winding up its old pension scheme in order to give the company an easier handle on managing and investing pension funds.

Managing Director Michael Bernard said the Financial Services Commission was informed of its plan back in September 2006, and insisted the beneficiaries would be better off under the new arrangement.

Carreras is putting a new scheme in place, one that would be a better fit, said Bernard, with the restructured operations, which has been stripped down from a group of companies to focus on its core business - tobacco manufacturing.

Bernard said the fund had several billion dollars - noting that a precise figure should be available in a month after the actuary finalised the valuation ? and that the trustees and company would decide jointly how to treat with the surplus.

"When we put that scheme together we were looking at 1,000 employees; today our permanent workforce is less than 80 and the structure and dynamics of the workforce has changed," said Bernard.

"Most companies including Carreras are moving towards a defined contribution scheme, which defines that five per cent from the employer and five per cent of the employee salary be used," he said.

FORMULA

Carreras currently has a defined benefit scheme which guarantees the employee pension amount based on a formula that employees vested for more than 10 years and have reached retirement age are entitled to two per cent of the employees' last three year's salary times the number of years he/she has served the company.

Under that formula, Wednesday Business calculations suggest that a 10 year employee earning $500,000 in the last three years to retirement would be entitled to a $300,000 pension. Bernard said Carreras found it difficult to manage and invest the funds to grow it so it could meet pension payments.

He said regardless of whether the pension fund has enough funds, the company was obliged to pump money into the scheme to cover shortfalls.

The company is of the view that any surplus in the scheme to be wound up should flow to Carreras and not the beneficiaries.

"For our scheme, the rule stipulates that the surplus be returned to the sponsors of the scheme which is the company," said Bernard.

"It is up to the trustees and sponsor to decide how the surplus is used," he said in response to how much if any of the surplus would be paid out to the beneficiaries of the scheme.

Before the Pension Regulation Act of 2004, older pension schemes were placed under the Income Tax Act for tax purposes where the Taxpayer Audit & Assessment Department (TAAD) had to approve the taxes.

Wednesday Business understands that The Financial Services Commission (FSC) does not intervene in the winding up of pension schemes unless the scheme was registered with the FSC or had some special arrangement at the time of its formulation.

susan.gordon@gleanerjm.com