We have all heard the saying, “Save for a rainy day,” but when it comes to retirement, it is not only a rainy day you are saving for, but you are saving for a specific known date, which is the day you retire. This is the point when you leave employment and, in most cases, no longer have a regular source of income. Retirement is something you can plan for. With some basic calculations based on your circumstances and current savings, you can estimate how much you will need and how much to set aside to retire comfortably.
But retirement savings are not just about funding your golden years. They can also provide financial security for you and your family during unexpected life events such as job loss, disability, or even death. That is why having retirement savings is not just smart, it is essential.
Many people think you need to contribute large sums to your retirement fund each month to save for retirement, which can feel overwhelming and lead to inaction. But here is the good news, even small amounts saved consistently over many years, boosted by compound interest, can make a big difference. Also, as your income grows, you can increase your monthly contributions. You are also allowed to make additional voluntary contributions whenever you have some extra cash, to help boost your overall retirement benefit.
South African retirement law provides different ways to save for retirement, which the government encourages by offering tax incentives in the form of tax deductions on your retirement fund contributions. For example, you can save through your employer’s pension or provident fund, where available. If your employer does not offer a retirement fund, or if you are self-employed, you can still contribute to a retirement annuity fund, which allows you to save without needing an employer-employee relationship. Whether you are saving through your employer’s fund or on your own, it is important to remember that it is ultimately your responsibility to ensure you have saved enough to support yourself during what could be one of the most financially vulnerable periods of your life.
When saving for retirement through a retirement product, it is important to understand the nature of the product you are investing in and to know what steps you must take to protect your retirement from risks, such as failure by key role players like the fund or employer to fulfill their obligations. If you do not take this responsibility early on, you may later discover issues when it is too late to fix them.
When it comes to safeguarding your retirement savings, make sure to look out for the following:
- Check your payslip and benefit statement to ensure that your employer is paying contributions on time and in full. If your employer fails to make contributions, it can reduce the amount you are entitled to when you leave the fund. In the worst-case scenario, such as death or disability, benefits could even be declined by the fund’s insurer due to non-payment of risk premiums.
- Understand the key provisions of your fund’s rules, such as the contribution rate, how and when to claim your benefits, what happens to your savings if you pass away, the process the fund follows if it withholds your benefits at your employer’s request, and any deductions that may be made from your benefit.
- If you are not receiving an annual benefit statement from your fund, be proactive and request one. Regularly reviewing your statement helps you keep track of your contributions and investment growth.
- Ensure that your chosen investment portfolio is suitable for your personal circumstances. Funds offer a variety of investment portfolios to cater to different member demographics and desired growth. Make sure you are well informed by reading your fund’s investment information and understanding your options if you are not satisfied with the portfolio your money is invested in.
Retirement funds in South Africa operate under strict rules set out in the Income Tax Act and the Pension Funds Act. It is important to understand the applicable restrictions particularly regarding when you are allowed to access your savings, so that you do not expect to make an early withdrawal, only to find out that it is prohibited by law.
For example, when saving through a retirement annuity fund, and apart from the portion accessible as a savings withdrawal in terms of the two-pot system, the earliest you can access your savings is at age 55, or earlier only in cases of ill health, immigration or if your total fund value is less than R15 000. This means that even in times of financial hardship, the fund is legally prevented from giving you early access. While saving for retirement is crucial, you may end up dissatisfied with your decision if you did not take the time to understand the product you are investing in.
Funds are required to provide you with clear communication regarding your rights and benefits. If you are unsure about anything, it is your responsibility to contact your fund and ask for the relevant information.
We encourage you to save for retirement to ensure financial comfort in your most vulnerable years. But more importantly, always seek information from credible sources such as the Principal Officer of your fund, your Human Resources Benefits Administrator, or your fund consultant. You can also consult a financial advisor registered with the Financial Sector Conduct Authority for professional advice.
Should you have any concerns, contact the OPFA to resolve your query. The service is free for all retirement fund members. You may contact the OPFA at the following address: 4th Floor, Riverwalk Office Park, Block A 41 Matroosberg Road, Ashlea Gardens, Pretoria or email us on enquiries@pfa.org.za or visit our website at www.pfa.org.za.
