GIVEN the low national savings rate and slow market growth both locally and internationally, it should come as no surprise that National Treasury calculates that only around 6% of Mzansi are on track to retire comfortably.
Walter van der Merwe, CEO of Fedgroup Life, said while many of us look forward to the day we are able to retire, retirement is not always as easy as we imagine.
Van der Merwe said many want to know the difference between a pension fund, a provident fund and a retirement annuity fund?
A pension fund can only be joined through a company that employs you, and your money is managed by the trustees of the fund. Your contributions as well as your employer’s contributions, are tax deductible up to a point.
Upon retirement, you can take up to a third of your savings in a cash lump sum, which is taxable. The rest must be used to purchase an income/annuity, which is also taxable.
If you leave the company before retirement, you can move your retirement savings out of the company fund, either to your new employer’s fund, a preservation fund or a retirement annuity fund, or take a cash payout, which is taxed.
According to 2018 legislation, provident funds are now essentially identical to pension funds, which means that you are only able to withdraw a third of your savings, while the rest has to be invested in an income or annuity that pays you a monthly income. However, this legislation has not been applied retroactively, which means that you can withdraw the full contribution made before 1 March 2018.
A retirement annuity fund, to which you also make monthly contributions, is completely independent of your employer, allowing you to choose what funds you invest.
Upon retirement, you are allowed to take a maximum of a third of your savings as a cash lump sum and the balance must be used to purchase an income or annuity.
If you change jobs before retirement, this will not impact your retirement annuity, as you are not permitted to access any portion of these funds before retirement.