Registered Retirement Savings Plan , giving back the power of Choice

Executive Summary: The policy imperatives of why this plan should be put into practice NOW!
1. There is an actuarial shortfall in 2030 in the existent national social benefit scheme for future retirees that requires in 2011 those in the workforce to start now to supplement this shortfall by having individual retirement plans in order to receive at least 70% of their current income as pension income to maintain their standard of living. Hence a person age 45 today having an income of $200K/yr would require upon reaching age 61yrs a pension income of at least $10K per month in today’s dollar to last for 30 years indexed to inflation. There is no way the existent scheme in Trinidad allows for this to the majority of its workforce, unless you have executive pension packages as the CEO and upper echelon management. Furthermore the contribution of the existent 2011 workforce into the pension plan is used to pay out the aging baby boomers the 1932-1952, and hence in 2030 when those born 1962-1982, begin retirement, the plan would be bankrupt if status quo is kept, as those born in 1982-2002, would not be able to provide enough investment capital to support the requirements of the 1962-1982 demographic retirees. This plan being proposed solves this effectively.
2. There is a LIQUIDITY issue and this plan stabilizes marketplace capital by creating a savings basket for seven year horizons, apart from our REPO and stock market what else is there? With the LSVCF we have access to pools of capital to develop and expand, owning our own together with FDI, giving us options. For example to solve the flooding in Port of Spain, the GoTT decides to use the Tokyo model which I have proposed. The cost is $18 Billion. Where is the money ?, Well from the LSVCF as a start , buying POS infrastructure debt, 2050 maturity at coupon rate 11% semi-annually. Assuming this debt was issued in 2011, the LSVCF/TNTGF/RRTF/2011 has $8 Billion in subscriptions, and purchases this debt up to $3 Billion and holds on to it. In 2016 this debt could be sold in part or all in the secondary REPO market ,if needed for redemption payout for 2018 subscribers who are taking out their money to use as pension, less 25% of course , which is remitted to the GOTT, Inland Rev. Another example is the creation of an LNG Global Mercantile Exchange Center in Trinidad which I have proposed, with a cost $700 Million, well where is the money going to come from , again there is a capital pool the LSVCF/TNTGF/RRTF/2011 for an equity investment in the 2011 of $400 Million into this facility. In 2016, the equity position is converted in part or whole into cash by selling into the TTSE or the partners of the LNG mercantile exchange, similar to DME in Dubai. Here we enter in Trinidad & Tobago specifically Port of Spain being a de facto IFC as part vision 2020.
3. The third compelling reason why this GOTT ought to seriously consider doing this is one of revenue generation, as experience by the GoC. Ottawa is not concerned about the future cash shortage as it has close to 1.8 Trillion dollars in future taxes to gain from the existent $560 Billion RRSP pool in 2010. How , well there is revenue sharing of 25bp of TER of AUM which is calculated daily, and goes to GOTT, so if you do mark to market valuation and there is $1 billion then the GOTT gets $25 Million thank you kindly of the 1% TER charged to the LSVCF. Furthermore there is the 25% withholding AT SOURCE when the money is paid out to the BIR owner. Of course if the BIR owner wants to keep investing then she/he simply rolls over into a new subscription, but at age 65 must began taking out money on the following minimum formula based on the December31st valuation of the proceeding year of turning 65.
Assuming 2025 Dec 31 Value of Anna Singh BIR 10265892 RRTF was $10,000,000.00 and Ms.Singh turns 65yrs in 2026 then
Age 65 minimum withdrawal 6%/yr less 25% withholding to
Age 69 minimum withdrawal 9 %/yr less 25% withholding to
Age 78 minimum withdrawal is 15% /yr less 25% withholding to death

A nation that saves is free from the thraldom and usurping of its sovereignty: Ben Franklin
The impossible idea is to set up a registered investment vehicle for the purchaser, an individual with a BIR , that has the following:

Long term capital appreciation
Liquidity
Tax preferred advantages

A vehicle similar to what we have in BC called WOF, run by David Levi,, CEO , growthworks.ca. I understand from David that Murray Munroe SVP , Todd Tessier , BC Government and himself on the invitation of GOTT in 1998 pitched this to the Unit Trust but got no where. However I was speaking to David and Murray Munroe again in the later part of 2009, and both were optimistic this can work here, and so do I.

The structure would be a trust fund that sells investment units that have a lock in period for seven years before there is liquidity, the money is pooled into bona fide Venture capital companies indigenous to Trinidad and Tobago &LAC region or public private partnership projects as described above. The current tax laws needs to allow for 25% of the initial investment to be applied as a current tax credit or used as a carry forward tax credit for five years or roll back three years back. When the money is taken out of the plan , after seven years 25% is withheld at source as taxes.

The scheme is as follows:

The capital pool is use within Trinidad & Tobago and LAC enterprises as equity and or convertible debenture with an exit strategy of five years, this allows a two year accumulation to occur for the investor seven year holding period . At the end of seven years the investor has the choice of keeping the investment paper or redeeming it for cash, our experience is that there is a 35% redemption rate in bull markets and a 80% redemption rate in bear markets.

Lets for discussion purposes break it out as follows under existent GOTT Income tax and Securities law for 2010:

Initial Investment required minimum $10000.00 TT facilitated by an investment loan by a FI ( FCBTT, RBTT) over 24 months at a cost of borrowing of 10% per annum. All interest is tax deductible. Client can come up with lump sum cash if does not want to borrow as an alternative. Client purchases an investment unit MV from the TNT GROWTH FUND (TNTGF) at $10000.00 , for which a receipt is issued. Client can only purchase the fund from January 3 to March 30 , 2011 , a subscription period of 90 days. The fund is closed off as of April 1st, 2011.

Assuming that the TNTGF target meets the requirements of being a VCC investment & the client gets a tax credit at their MTR assuming it is 25%, of $2500. This money can be use to pay down the loan or keep as emergency fund. The capital at risk to the client is now $7500 . At the beginning of 2016 the investment pool into local VC businesses into which the 2011 TNTGF pool was invested in is wound
down . Assuming the AUM for 2011 TNTGF was $1 Billion TT, as there are 500,000 tax filers in Trinidad as of 2009 and if only 1 in 5 use this product to reduce their taxes and get capital appreciation then
100000 tax filers using this product then creates a pool of $1000,000,000.

The question that behoves asking is there enough enterprise capacity in Trinidad & Tobago to absorb that capital pool and offer LIQUIDITY IN SEVEN YEARS , and the answer according to TTMA Contact magazine 2009 is that manufacturing , infrastructure and distribution services in Trinidad need annually $10 billion TT of capital infusion to modernize and keep up with the previous year until 2015.

I would like to develop this program here in Trinidad and through FIs using my relationship and familiarity with Growthfund.ca in BC as a resource center. The key is the distribution and remuneration to the salesperson be it an accountant , tax preparer, bank branch level staffer ,insurance sales person, financial planner, private banker, tax lawyer or securities salesperson. The disclosure and prospectus must be compliant and in plain simple language and there must be a clear demonstrative need for the dual benefits of reducing taxes and having capital appreciation in the clients investment portfolio. This type of product should never be a standalone in the portfolio composition of the client, but with the prudent mixing of GIC, stocks ,investment trust/mutual funds in both equity and debt and this tax preferred investment product , it makes sense. For the pay out to the salesperson , gross $500 per investment unit ($10000 increments) should more than suffice and a further $500 for marketing and administrative expenses is reasonable, so the client has $9000 working for them at the get go ,with a $2500 , tax refund , and it is a win -win situation.

Assuming the TNTGF capital pool target for AUM into the market economy is $1 Billion, this means a selection of up to 10 investment decisions averaging $100 Million or 100 investment decisions averaging $10 Million or a single investment of $1 billion depending on the market and the appetite of the business managers, the business investment time line is up to 60 months and , 24 months for cash conversion into T-bills GOTT. This is not HCU & CLICO Model, ok, lets get that out now, this is not CLICO & HCU. This process is repeated until the business team has saturated the local market , which is a very minute possibility though high improbable of this occurring , given the forecasting of SPV and PPP in Trinidad & Tobago raising in the next ten years. For example TSTT is in need of $7.9 Billion dollars to meet its current commitments of digital optic fibre &wireless towers in Trinidad & Tobago, TCL requires new equipment and plant retooling in the region of $2 Billion,WASA requires $10 Billion for pipeline, reservoir and waste water upgrades, T&TEC requires to modernize $7 Billion , NGC is seeking a further $12 Billion to improve its terminal and processing capabilities and the list goes on and on. Acres of diamonds in our back yard. The annualized ROI on such a TNTGF is predicted to be inflation plus 5%, hence with real inflation in Trinidad being 9.9% according to Central Bank , a 15% ROI per annum over five years should result in your money doubling, hence after seven years your $10000 investment should be in the value of $18000 ( as only $9000 was the invested capital) not including the $2500 you already received in tax savings. The downsize risk is LIQUIDITY ,the unwinding of the investment in a bear market, and the longest bear market to date has been 14 months, the TNTGF has a 24 month unwinding time ,beginning at the end of Year 5 to the end of Year 7.

I know it is a lot to digest , but it is really simple , the devil is in the details getting the SEC , MOF, Inland Revenue TTAFP, Insurance Companies and the various FI all on board and raising the bar so high
as to make the cost of competition prohibitive or alternatively go the syndicated route like Cirrus , VISA and have the major FI buy in as stakeholders.

Alternatively cannibalizing the UTC RTF , giving subscribers first right to transfer into UTC RRTF on a first come first serve basis until $1 Billion is reached for the 2011 LSVCF/TNTGF, as a fast start prescription is also feasible. The benefit for the subscriber moving from UTC RTF to UTC RRTF is the tax credit of up to 25% of funds transferred, but there is the fee of 10% to pay as cost of doing business, which could be lowered or even waived.
Here I conclude by saying this is not new it was started by BC Canadians in 1989 and it works , very well, and there is no reason why it cannot be put to work here in Trinidad & Tobago. The specious objection that Trinidad & Tobago does not the capacity , is false , but even if so the mandate of the investment geography is LAC, so hence diversification of region and reducing alpha portfolio risk etc. When would you like me to start assembling the team ? I can be reached at 1-868-292-4282.

Thank you
Adrian Matadeen
Group Managing Director
www.fatzgroup.com