RETIREMENT FUNDS

PRE RETIREMENT

RETIREMENT ANNUITY

Saving for your retirement is one of the most important financial goals you’ll ever have. Once you retire, you’ll need an income to support your lifestyle. Medical costs increase as you age, and because we’re living longer, you’ll need enough funds to take you through your 20 to 30 years of retirement. Without retirement savings, a retiree could be forced to downsize their home and lifestyle, or even forgo retirement altogether.

Assuming you start relatively early, you should aim to save at least 15% of your pre-tax income towards your retirement. Up to 27.5% of your combined contribution to your Pension / Provident and Personal Retirement Annuity will be tax deductible. If you start saving at the age of 25 and consistently save 15% of your gross income, you should have enough saved to replace around 75% of your income in retirement, which will allow you to live comfortably.

PENSION / PROVIDENT FUND PRESERVERS

Pension and Provident Fund Preservers are a way to save towards your retirement. They are investment vehicles designed for individuals who wish to invest the proceeds of their pension or provident fund in a tax-efficient manner.

Should you decide to switch jobs or are retrenched, you can transfer the proceeds of your Pension or Provident Fund to a Preservation Fund. The advantage of using a Perseveration Fund is that you keep the savings you have accumulated during your employment as well as well as the attached tax benefits.

PENSION / PROVIDENT FUND PRESERVERS VS RETIREMENT ANNUITY

While all three of these options qualify for the same tax benefits, there are significant differences between them. Both pension and provident funds are offered by an employer – often as a condition of employment – with you and your employer making monthly contributions to these funds. Retirement annuities, on the other hand, are bought by the individual, meaning you’re free to contribute to one whether you’re self-employed or you already contribute to a pension or provident fund. They also typically offer wider investment fund choices than either of the other two funds.

POST RETIREMENT

At retirement you have the option of:

Withdrawing 1/3 of your retirement fund. The first R500 000 will be tax free subject to no previous amounts of this allocation having been used. The balance been taxable.
The purchase of an Annuity of your choice with the remaining 2/3 of your retirement fund.
Alternatively, the purchase of an Annuity of your choice with the full retirement fund.

Annuities are subjected to current PAYE SARS tax tables.

Living Annuity / Flexible Annuity

A Living Annuity provides you with income during retirement. With a Living Annuity, you decide how to invest your savings, within the basket of investments offered by your Product Provider. You can also decide how much income to draw - within the regulatory limits of 2.5 - 17.5% annually. Brofin Financial Advisor will provide you with the necessary information in order to make the most appropriate choice considering your specific circumstances.

Why should you consider investing in a Living Annuity?

Investing in a Living Annuity comes with advantages. One of the most important things is the ability to invest and stay ahead of inflation. You also have the flexibility to decide how much to drawdown - although you need to be careful not to withdraw too much as the monies in this investment have to provide for you for the rest of your life. You can pass on the portion of the funds in your investment that you have not used as an inheritance to your nominated beneficiaries when you pass away.

Life Annuity / Guaranteed Annuity

A Life Annuity provides you with income once you have retired by paying out a series of payments at fixed intervals while you are still alive.

Why should you consider purchasing a Life Annuity?

Purchasing a Life Annuity gives you peace of mind during your retirement as it transfers the risk of outliving your money to the insurer.

What are the benefits of investing in the Life Annuity?

Certainty of income: the Product Provider commits to providing you peace of mind by paying your income whilst you are still alive. You will know the income you will receive upfront and it is guaranteed by the Product Provider.
Customise to suit needs: You can choose between setting a minimum payment period, purchasing a single or joint-life annuity with your partner, and including annual increases to the income.
Keep up with inflation: You also have the option of selecting the Consumer Price Index (CPI) as an annual increase and thus, ensuring that your income keeps track with inflation.

You can choose to add a minimum term to the payments that will not depend on survival.
You can also choose between a single or joint-life annuity where you add your partner.

THE TWO POT SYSTEM

The Two-Pot System marks a significant change to South Africa's retirement landscape. It's designed to provide you with a safety net in times of financial crisis while encouraging long-term savings.

All your future contributions to your retirement fund will be split into two pots: a savings pot and a retirement pot. Your current retirement savings until 31 August 2024 will remain preserved in a vested pot.

RETIRMENT POT

VESTED POT

Your retirement savings up until 31 August 2024.
On 1 September 2024, 10% of your retirement savings, up to a maximum of R30 000, will be transferred to the savings pot.
Should you decide not to take the full amount in your savings pot the balance will still be protected until you retire or you can access all your savings when you change employers.
No further contributions can be made to your vested component from 1 September 2024.

SAVINGS POT

One-third of your retirement contributions from 1 September 2024 will go into your Savings Pot.
You can withdraw from this Savings Pot once every tax year.
The minimum withdrawal amount is R2 000, which will be taxed at your marginal income tax rate.
There is no maximum limit to the amount you can withdraw.
There will be an administration fee any withdrawal you make.