Fifteen years after the implementation of compulsory pensions in Bermuda, research tells me that many of us are taking retirement funding and planning for granted and are not taking the time to revisit our current pension arrangements.

Due to the mandatory nature of the National Pension Law, most of us believe that we will have sufficient available income when we retire. This might not be the case, therefore we owe it to ourselves to check our pension provider’s performance to ascertain that we are getting the maximum return that we deserve.

While we have no control over the market returns, we can certainly control the return that we can potentially get through diversification and investment manager selection.

To highlight the importance of having our pension contributions managed and invested with the right pension provider, thus enabling us to achieve the best return, let’s look at the impact a one per cent difference in our investment return will have by the time we retire.

Let’s take a 30 year old, earning $60,655 (most recent median salary released by the Bermuda Statistics Department), contributing the mandated 10 per cent (five employer-five per cent employee) and compounded at an average annual return of six, seven, and eight per cent respectively. Over the 35-year period to normal retirement age, we will get the following:

Annualised Rate Of Return 6% 7% 8%

Balance At Retirement $675,908 $838,476 $1,045,187

When comparing the various balances, you will note a difference of $162,568 between six per cent and seven per cent, and a difference of $206,711 between seven per cent and eight per cent. The striking conclusion is that “it pays to monitor your investment returns”.

Investment principles of quality, diversification, and a long-term focus are the foundation of a solid investment strategy. Our goal at Colonial Pension Services is to help you adhere to these principles and provide you with a pension platform and investment options that are relevant.

Risk tolerance is not a one-size-fits-all concept, and for the most part is dependent on an individual’s perception of risk and other unique life factors. Some people think it’s better to be conservative and hope for better, whilst others feel more confident about their investment abilities.

Every retirement plan requires making some key assumptions. One of those important assumptions is the rate of return we are going to get on our investment portfolio. Expectations for investment returns play an important role on influencing our savings behaviour, risk-taking and investment decisions.

In general, if we are many years away from retiring, more of our investments should be geared toward an asset class that provides the opportunity for growth, such as equity mutual funds, as we generally have more time to weather short-term declines and pursue higher long-term returns.

It is still important, however, to incorporate other asset classes into the mix, such as bonds, which can help smooth out changes in our portfolio’s value over time.

Research shows that the key to long-term investment performance is effective asset allocation. Studies have found that asset allocation was responsible for 90 per cent of a diversified portfolio’s return patterns over time. An appropriate asset allocation that offers exposure to several types of investments will help us meet our financial goals while keeping our investments in balance and our asset allocation on track.

Having a sound financial plan serves as a road map to help us reach our long-term retirement goals, and the first step begins with looking and choosing the best option available to maximise our return potential and ultimately achieving our retirement goals.

This low interest rate environment that we have experienced over the last decade, has no doubt caused many to keep our eyes open in search of a better return on our savings accounts. Most of us can remember the days when savings accounts were earning four per cent or more, and looking for the best CD rate has become a national pastime of Bermudians who are quick to move money to the institution that is offering the highest rate. The same should hold true for our pensions. Why remain invested with a pension provider that is not offering the best return potential to achieve and fund our expected retirement lifestyle?

*Investment Returns at Nov 30 2014

Colonial Pension Services believe in providing clients with choice and flexibility to customise your asset allocation mix. Under the guidance of our qualified investment personnel, clients have the ability to self-direct their investment plan options, or for those who may find choosing their investment options a little daunting, our professionally managed risk profile options provide varying asset allocation mixes to suit individual risk tolerance levels, with each profile delivering attractive returns, maximising our members return potential and bringing them one step closer to achieving the retirement lifestyles they want and deserve.

Jason Cook is Colonial Pension Services Ltd’s senior pension consultant.