Retirement Planning

Planning for your retirement is one of the most important considerations when planning for your financial future. The vast majority of South African’s don’t have enough savings to cover their costs comfortably during retirement. That is why it is really important to start saving for your retirement when you first start working.
Retirement savings are long-term savings options that provide an income when a person retires. The money is saved while a person is still employed.

Because retirement is a long-term financial goal, you can save and invest your money and watch it grow over a longer period. As the years pass you start to earn interest on interest which helps you to build your wealth.

There are four main kinds of retirement investments.

Pension fund
This is a long-term saving option that provides a pension for a person when they retire. A pension fund is usually arranged by an employer for a group of employees. The person receives a third of the total amount in one payment when they retire and the remaining two-thirds is paid out on a monthly basis, as a pension.
Provident fund
A provident fund is another kind of long-term saving option that provides a lump sum (one big payment) to a person when they retire. A provident fund is usually arranged by employers for groups of employees. The person receives all of the money that they have saved in one payment.
Retirement annuity
An investment where a person saves regularly so that they can have an income when they retire. The person receives a third of the total amount in one payment when they retire and the two-thirds is paid out monthly as an annuity. Individuals who are self-employed or whose employers don’t provide a pension or provident fund can save in retirement annuities. Consult a certified financial planner to discuss which retirement annuity would be best for you.
Preservation funds
If you are moving to a new job or have been retrenched or lost your job it is important to think about keeping your retirement savings intact. You can transfer your pension fund to a preservation fund. The full fund credit will be transferred tax free giving you maximum tax benefits as well as keeping your valuable retirement savings protected. If you are currently in a pension fund you would transfer to a preservation pension fund and if you are in a provident fund you would have to transfer to a preservation provident fund.
retirement options retirement planning wagewise
Retirement savings are long-term savings options that provide an income when a person retires. The money is saved while a person is still employed.

Because retirement is a long-term financial goal, you can save and invest your money and watch it grow over a longer period. As the years pass you start to earn interest on interest which helps you to build your wealth.

There are four main kinds of retirement investments.

Pension fund
This is a long-term saving option that provides a pension for a person when they retire. A pension fund is usually arranged by an employer for a group of employees. The person receives a third of the total amount in one payment when they retire and the remaining two-thirds is paid out on a monthly basis, as a pension.
Provident fund
A provident fund is another kind of long-term saving option that provides a lump sum (one big payment) to a person when they retire. A provident fund is usually arranged by employers for groups of employees. The person receives all of the money that they have saved in one payment.
Retirement annuity
An investment where a person saves regularly so that they can have an income when they retire. The person receives a third of the total amount in one payment when they retire and the two-thirds is paid out monthly as an annuity. Individuals who are self-employed or whose employers don’t provide a pension or provident fund can save in retirement annuities. Consult a certified financial planner to discuss which retirement annuity would be best for you.
Preservation funds
If you are moving to a new job or have been retrenched or lost your job it is important to think about keeping your retirement savings intact. You can transfer your pension fund to a preservation fund. The full fund credit will be transferred tax free giving you maximum tax benefits as well as keeping your valuable retirement savings protected. If you are currently in a pension fund you would transfer to a preservation pension fund and if you are in a provident fund you would have to transfer to a preservation provident fund.

Group benefit schemes

Because many employers arrange a pension or provident fund for their employees, these are often called group benefit schemes. In addition to retirement investments, the employer may offer funeral insurance, medical cover and disability cover. Group benefits work because all of the participants contribute to the benefit scheme. If each person was contributing individually, the costs could be a little higher than if the group is saving together.

These benefits are normally provided by an insurance company and not by the employer. Once a year each employee will receive a benefit statement that provides details on their benefits.

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Group benefit schemes

Because many employers arrange a pension or provident fund for their employees, these are often called group benefit schemes. In addition to retirement investments, the employer may offer funeral insurance, medical cover and disability cover. Group benefits work because all of the participants contribute to the benefit scheme. If each person was contributing individually, the costs could be a little higher than if the group is saving together.

These benefits are normally provided by an insurance company and not by the employer. Once a year each employee will receive a benefit statement that provides details on their benefits.

Benefit statements

If you have a retirement investment or are part of a group benefit scheme you will receive a benefit statement once a year. This statement is a very valuable source of information and you should read through it to get a better picture of your financial standing.

Your benefit statement will contain the following information:

  • Your name and personal details
  • How much you contribute each month
  • If your retirement investment or group benefit scheme is linked to your employer it will include how much your employer contributes
  • The details of people covered by the benefit scheme for funeral cover and any other insurance

Remember to review your benefit statement every year to make sure your details are correct and that the right beneficiaries are listed.

benefit statements retirement planning wagewise

Benefit statements

If you have a retirement investment or are part of a group benefit scheme you will receive a benefit statement once a year. This statement is a very valuable source of information and you should read through it to get a better picture of your financial standing.

Your benefit statement will contain the following information:

  • Your name and personal details
  • How much you contribute each month
  • If your retirement investment or group benefit scheme is linked to your employer it will include how much your employer contributes
  • The details of people covered by the benefit scheme for funeral cover and any other insurance

Remember to review your benefit statement every year to make sure your details are correct and that the right beneficiaries are listed.

Beneficiaries and nominees

The Trustees of a retirement fund have a responsibility to make sure your financial dependents benefit from the retirement investment should any funds remain when you die. That is why you should always ensure that your beneficiary details reflect your financial dependents – the people who depend on you for financial support for example your children, spouse, adopted and step-children.

A beneficiary is someone who benefits when a person dies. On a benefit statement there will be a line that shows who the beneficiaries are on the policy. If you don’t select a beneficiary, it creates problems for the Trustees of the retirement fund to decide who to give the money to if the employee dies.

A nominee is a person or organisation that has no formal, direct relationship with you. This might be the church, or a charity, a school or university.

After all the dependents (the beneficiaries) are treated fairly if there are funds left over, the Trustees can then allocate funds to the nominees.

There are 3 kinds of dependents:

  • Legal dependents – A person who is legally entitled to be maintained by the deceased due to their relationship to the deceased. An example of a legal dependent is a spouse or a biological child.
  • Factual dependents – A person who was in fact dependent on the member at the date of death for maintenance, for example, a person who lived together with the deceased as husband or wife but without being formally married to them.
  • Future dependents – A person who would have become legally liable for maintenance if the member has not died, for example, an engaged couple or another person who would have married the deceased.

If your nominated beneficiaries are different to your financial dependents, the Trustees might rule that the money is allocated to your financial dependents.

Remember: It is your responsibility to make sure that the listed beneficiaries on your policy are up to date and that their contact details are updated. As far as possible these should be your financial dependents. Remember that you must update your beneficiaries regularly, especially if your life circumstances change e.g.: you get married, divorced or a new child is born.

Beneficiaries and nominees

The Trustees of a retirement fund have a responsibility to make sure your financial dependents benefit from the retirement investment should any funds remain when you die. That is why you should always ensure that your beneficiary details reflect your financial dependents – the people who depend on you for financial support for example your children, spouse, adopted and step-children.

A beneficiary is someone who benefits when a person dies. On a benefit statement there will be a line that shows who the beneficiaries are on the policy. If you don’t select a beneficiary, it creates problems for the Trustees of the retirement fund to decide who to give the money to if the employee dies.

A nominee is a person or organisation that has no formal, direct relationship with you. This might be the church, or a charity, a school or university.

After all the dependents (the beneficiaries) are treated fairly if there are funds left over, the Trustees can then allocate funds to the nominees.

There are 3 kinds of dependents:

  • Legal dependents – A person who is legally entitled to be maintained by the deceased due to their relationship to the deceased. An example of a legal dependent is a spouse or a biological child.
  • Factual dependents – A person who was in fact dependent on the member at the date of death for maintenance, for example, a person who lived together with the deceased as husband or wife but without being formally married to them.
  • Future dependents – A person who would have become legally liable for maintenance if the member has not died, for example, an engaged couple or another person who would have married the deceased.

If your nominated beneficiaries are different to your financial dependents, the Trustees might rule that the money is allocated to your financial dependents.

Remember: It is your responsibility to make sure that the listed beneficiaries on your policy are up to date and that their contact details are updated. As far as possible these should be your financial dependents. Remember that you must update your beneficiaries regularly, especially if your life circumstances change e.g.: you get married, divorced or a new child is born.

What happens when I retire or leave my job?

When you retire you are allowed to access your money. It is best to speak to a certified financial planner BEFORE taking the money to get advice on all of the options available to you to access the money and advise you on how best to plan with and invest your money.

When you move to another job, you should speak to a certified financial planner before you decide to withdraw money from a company investment fund. You are able to transfer funds from one company fund to another with no penalty, but if you choose to draw your money as cash you might end up with no money for retirement and you will be taxed on your withdrawal.

You can choose to transfer your retirement savings to a retirement annuity, preservation fund or even to your new employer’s retirement fund. If you choose to transfer your savings to these funds your savings won’t be taxed and your savings will continue to grow.

What happens when I retire or leave my job?

When you retire you are allowed to access your money. It is best to speak to a certified financial planner BEFORE taking the money to get advice on all of the options available to you to access the money and advise you on how best to plan with and invest your money.

When you move to another job, you should speak to a certified financial planner before you decide to withdraw money from a company investment fund. You are able to transfer funds from one company fund to another with no penalty, but if you choose to draw your money as cash you might end up with no money for retirement and you will be taxed on your withdrawal.

You can choose to transfer your retirement savings to a retirement annuity, preservation fund or even to your new employer’s retirement fund. If you choose to transfer your savings to these funds your savings won’t be taxed and your savings will continue to grow.

How often should I review my retirement plans?

Check in with a certified financial planner every few years (possibly once a year) to check that your investments are adequate for retirement, or to make arrangements if they are not. A certified financial planner will be able to assist with advice on this.

If you are thinking of moving jobs ALWAYS check with a certified financial planner before making a decision about removing your money from a company investment fund.

review retirement plan wagewise

How often should I review my retirement plans?

Check in with a certified financial planner every few years (possibly once a year) to check that your investments are adequate for retirement, or to make arrangements if they are not. A certified financial planner will be able to assist with advice on this.

If you are thinking of moving jobs ALWAYS check with a certified financial planner before making a decision about removing your money from a company investment fund.

#GetWageWise tip: start contributing to a retirement fund from your first salary, this way you will be building wealth throughout your career.

Frequently asked questions

How often am I supposed to receive a benefit statement?
This will often depend on the rules of your insurance scheme, but you should be able to check the status of your investments at any time by contacting either your investment house, your company broker or your HR office. You should receive a statement at least once a year.
Can children born outside marriage claim on benefits?
If you have acknowledged that you are their parent, then these children have a right to any benefits that children within a marriage have access to.
How will my beneficiaries know I have a will?
The best way for them to know is for you to tell them. You do not have to tell them what is in the will, but you should tell them that you have a will, where it is stored and who to contact in the event of your death. You should consider lodging (keeping) your will in a safe place like with your bank, an insurance company or a lawyer.
Saver Waya Waya WageWise is a financial literacy initiative of the ASISA Foundation. The WageWise website was largely funded by the Sanlam Foundation.