is said that the average worker changes jobs about ten times
in his life. Each time it is usually because a higher salary
promises a better cash flow position. Today we continue to
focus on cash flow and astute management.
One significant deduction from the payslip is the pension
contribution. Public servants traditionally have non-contributory
pension plans, so no deduction for pension comes out from
their incomes. There are still others who have no pension
plan whatever, who depend on NIS for a pension.
Current tax laws allow the taxpayer to claim a maximum pension
contribution of $12,000 as non-taxable income. Employed persons
should take advantage of this provision. Money so contributed,
are monies saved before taxes.
Suppose you wish to save $500 per month or $6,000 per year.
If you save in a pension or individual annuity, you take money
out of your income before taxes are charged to the income.
If you saved in a savings account, you will have paid tax
on the $6,000 before you put it into the savings account.
Assuming you pay tax at 25 per cent, you will not have all
of $6,000 tax-free. Instead, you will have paid 25 per cent
of $6,000 as tax, with the remainder of $4,500 to put into
a savings account.
So, an important first rule is to take maximum claim for pension
and annuity. There is a 50 per cent probability that you will
Incidentally, the word annuity refers to a stream of
income and consists of a stream of inflows of cash (savings),
followed by periodic outflows of cash.
Another common deduction from the payslip is the insurance
premium for Group Life and Health coverage. This insurance
plan can be fully employer sponsored or can be contributory,
where the employee pays a portion of the premium.
It is interesting to note that employees by themselves seldom
put such plans into effect. More commonly trade unions, and
employee benefits personnel are likely to seek the implementation
of such plans.
Health plans are very often misunderstood. The premium that
is deducted to cover the employee and his family provides
one-year term coverage. It has to be renewed every year, and
the premiums can increase every year if the claims experience
In addition, health plans often carry a co-insurance provision.
Co-insurance means that the employee remains responsible for
a percentage of the medical bills. Co-insurance can be 20-80
or 30-70 commonly. Here the employee will take up the first
20 per cent or 30 per cent of the bill, and the insurance
company will take up the balance. Importantly, bills for medical
expenses are always subject to what are called reasonable
and customary limits.
To illustrate: assume you go to a surgeon to have a hernia
repaired. Assume that the normal cost for this surgical procedure
is $4,000, but because somebody knows that insurance is paying
the bill, the fee that is charged is $8,000. The health plan
benefit will be matched to what is a reasonable and customary
cost for the procedure. It will pay either 80 per cent or
70 per cent of $4,000, and ignore the inflated billing.
This co-insurance factor, is an indictor for those with health
plans, to begin to set aside money to pay for major medical
expenses, not covered by the Insurer. You can thus put into
effect personal major medical insurances that will compliment
your Group plan, so that you can pay the 20 per cent or 30
per cent when necessary.
What is especially significant is that group insurance plans
belong to the employer, and if you leave the job, you leave
the insurance behind.
Raziah Ahmed is a registered financial consultant.