Kobus Kunz – Head of Consulting, Efficient Benefit Consulting

In our first instalment we considered the why of retirement planning. In Part 2, we will investigate the four different types of long-term retirement vehicles available to you in South Africa.

Pension Fund

An employer usually arranges a pension fund for a group of employees, therefore, you can only invest through this vehicle if the company you work for has a pension fund. You will receive a third of the total amount in one lump sum payment when you retire and you can then invest the remaining two-thirds in a living/life annuity. A living/life annuity can provide you with a monthly income in your retirement years.

Provident Fund

You can only invest through this vehicle if the company you work for has a provident fund. Prior to 01 March 2021, you could take all your savings as a lump sum cash at retirement. With the reform that came into effect on 01 March 2021, provident funds are treated more in line with pension funds. Any money invested before this date is referred to as a vested right. You can take the full portion in cash at retirement. Any funds invested after this date is the non-vested rights and will be limited to 1/3 cash withdrawals at retirement. The remaining funds can be invested in a living/life annuity for a monthly income during retirement.

This new legislation excludes those who were 55 years on 1 March 2021, this group can still take all their savings as cash payout upon retirement. For those younger than 55 years on 1 March 2021, the new rules will apply to all new contributions made after 01 March 2021.

Preservation Fund

It is important to think about keeping your retirement savings intact if you

• are moving to a new job, or
• have been retrenched, or
• lost your job.

You can transfer your pension fund to a preservation fund. The full fund credit will be transferred tax-free, giving you maximum tax benefits while keeping your valuable retirement savings protected.

Retirement Annuity

This vehicle is an investment where you save regularly amounts to provide you with an income when you retire. You will receive a third of the total amount in one payment when you retire and the remaining two-thirds will be invested in a living/life annuity where you will receive a monthly income. If you are self-employed or your employer do not provide a pension or provident fund, you can save for your retirement using this option. It is critical that you consult a financial advisor to discuss which retirement annuity would be best for your needs.

The National Treasury implemented amendments into legislation to help guide fund members navigate through retirement. A person is allowed to contribute any amount to retirement funds, but only a maximum of 27.5% of the taxable income will be tax deductible, with a maximum of R350 000 per annum being tax deductible.

In our next instalment, we look at the tax implications for your retirement.

ENDS

Catch up on the series – see below…