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Understanding retirement products

13 March 2012 Michelle Human: Legal Marketing Consultant, Liberty Retail SA
Michelle Human: Legal Marketing Consultant, Liberty Retail SA

Michelle Human: Legal Marketing Consultant, Liberty Retail SA

You may have a pension fund or a provident fund, a preservation fund or a retirement annuity, or even a combination of funds. What are the differences between the various funds and how should you be saving for your retirement? Pension or provident fund

However, your membership of the fund is linked to your employment and if you leave your employer, you will normally leave the fund. In this case you can preserve your benefit or take the funds in cash, after the applicable tax has been deducted. If you choose to preserve your benefit, you could do so by transferring the funds to a preservation fund. This is a fund that is run in the same way as your pension or provident fund, but is not linked to your employer.

Retirement annuities are policies taken out individually. They are not linked to your employer but are your own private retirement savings plan. You can contribute to your retirement annuity regularly and add funds when you choose to, making it a flexible choice for retirement saving.

All retirement funds are invested in an investment portfolio of your choice (subject to legislative limits) which should be in line with your risk profile, taking into account factors such as the number of years you still have to save until retirement and your risk appetite. The funds aim to grow at a rate that outperforms inflation, giving you a real return and accumulating capital.

Summary of the basic differences between the various types of retirement fund

 

Pension Fund

Provident Fund

Retirement Annuity

Preservation Fund

Do I have access to the funds before retirement?

Not while you are a member of the fund; however, you will have this option when you leave your employer

Not while you are a member of the fund; however, you will have this option when you leave your employer

No, the funds are generally tied up until retirement[1]

You have the option of one withdrawal before retirement

On retirement, how much of the capital can I take as a lump sum?

You may take up to 1/3 of the investment as a lump sum

You may take the full amount as a lump sum

You may take up to 1/3 of the investment as a lump sum

Depends on whether the funds initially came from a pension or a provident fund

What happens to the rest of the capital?

The balance will buy you an annuity which will provide an income for your retirement years

Any balance not taken as a lump sum will buy you an annuity which will provide an income for your retirement years

The balance will buy you an annuity which will provide an income for your retirement years

The balance will buy you an annuity which will provide an income for your retirement years

 


[1] Funds from retirement annuities may be withdrawn before retirement in certain instances such as in the event of divorce or emigration, the member may also be allowed to retire in case of permanent disability.

 

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