Let’s talk retirement!

It was recently reported on news 24 that a pension fund administrator working for Anglo Platinum employees has lost R 225m worth of mine provident fund workers money.  We thought it might be a good idea to share some insight on the subject particularly what a retirement fund is, how it differs for pension and provident fund, what are the responsibilities of the members (employees) and the employer.

Retirement Fund

This is a fund set up by an administrator, asset manager or insurer for the benefit of individual investors. The objective is to provide regular income to the members upon retirement or to provide a lump sum benefits to dependants of such members upon the member’s death.

Pension Fund

A pension fund is set up by the employer for the benefit of its employees. The objective is to provide pensions to the members (employees) upon retirement. A pension benefit may include other things such as death or a disability benefits.

Provident fund

A provident fund is set up by an employer for the benefits of its employees. The objective is to provide a cash lump sum benefit to its members (employees) upon retirement. It is the member’s a choice on how they wish to use their lump sum upon retirement.


Employer’s obligations

It needs to be noted that there is no obligation on the employer to establish employee benefits schemes but employers usually do so for the following reasons:

  • A moral duty, unfortunately the grants provided by the state is never enough to retire on establishing the fund helps employees save for retirement.
  • Establishment of the fund also releases an employer from having to provide financial assistance once an employee dies or retires.
  • There are also tax benefits provided by the State on contributions made by the employer.
  • The retirement benefits also help the employer attract and retain staff.

Exit options

When a person retires from a pension fund or retirement fund they are compelled by law to take a minimum of two thirds of the entire retirement benefit value as a compulsory pension / annuity. This is then paid to them as regular pension until they die. If the fund does not pay pension directly they can purchase an annuity from a long term insurance company.

Does inflation affect your retirement?

The simple answer to this is yes it does. The question that then arises is how do you then ensure that your payout lasts as long as you do? Once a year, as a member, you will receive a benefits statement, a benefits statement basically gives a detailed account on where you are as far as the fund is concerned .The onus is on the member to review this statement carefully and make the necessary adjustments where necessary like investing extra money  while you still working .

Here are a few tips to be noted on the above mentioned funds:

  • Get advice from a professional financial advisor before choosing a financial product
  • Take your responsibilities and needs into account
  • Invest for long term and treat recommendations to change your investment portfolio with caution
  • Invest in quality (always get professional advice)
  • Don’t swap investments unnecessarily as you may lose some money in the process
  • Start investing and saving for your retirement whilst you are young
  • Stick to the basics
  • Watch out for people who claim to be investment gurus
  • Take responsibility of your investments

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