The Office of the Pension Funds Adjudicator (OPFA) often receives complaints from retirement fund members dissatisfied with their pension values at retirement, which is often too late. In some cases, especially with defined contribution funds which do not guarantee a specific amount at retirement, little can be done to assist members. This is because a defined contribution fund calculates exit benefits based on contributions made on behalf of the member plus investment returns. In a defined contribution fund, which are common in South Africa, a member bears the investment risk if the investment does not perform well.
Members need to take responsibility for their retirement benefits during their contribution years, to ensure that they retire comfortably. During this Youth Month, it is important to remind those under 35 years of age that decisions made before retirement significantly impact their benefits at retirement. The time to make decisions about retirement is when you are still young. According to the Association for Savings and Investments, only 6% of South Africans retire comfortably. This means that those who have not saved enough may need to work during retirement or rely on family members.
It is important for members to know how much money they will need when they retire. This helps them take the right steps closer to a comfortable retirement. To do this, they can use retirement projection tools provided by funds, this includes a fund benefit statement which contains information on the benefit an individual is likely to receive at retirement. Where a member is not on track to retire comfortably, they can increase contributions or make additional voluntary contributions to the fund.
Where employers do not pay contributions, this can also lead to lower retirement benefits for members. Checking a benefit statement helps members confirm if contributions are being made. If not, members can lodge a complaint about the outstanding contributions.
Preserving withdrawal benefits when changing jobs contributes to a comfortable retirement. The two-pot system, effective 1 September 2024, will allow certain limited access to retirement fund savings without the need to leave employment. However, it is important to understand that accessing retirement savings early can negatively impact the benefit a member will receive at retirement, so this decision must be carefully considered.
Members must know what benefit they will receive at retirement and where their money is invested to ensure they are satisfied with the growth. If dissatisfied, members can contact the fund’s principal officer for information and take the necessary steps during the contribution years to ensure a comfortable retirement. Whilst some funds provide for member investment choice (where members choose the investment portfolios they want to invest in), most members opt for the default life-stage investment portfolios provided by the fund. Over the long run, it is important for members to keep an eye on investment costs as these may also erode benefits at retirement. Where unsure, members are advised to seek the assistance of a financial advisor.
Happy investing!
