Money advice: Your retirement questions answered

2018-12-11 06:00

Wondering about retirement annuities and retirement savings? We answer your money questions.

1. Do I need an adviser to take out an RA?

Q: Do I need a financial adviser before I can buy a retirement annuity? I am leaving my employer at the end of the month as my contract has come to an end. I want to transfer my pension. I do not have a job yet, but I do not want to touch my retirement fund.

A: Congratulations on resisting the temptation to cash in your pension. You do not need a financial adviser to take out a retirement annuity as many of the investment houses that offer retirement annuities have an option to invest directly with them. Keep in mind that they are not allowed to provide advice and can only act on your instruction. However, it may be a good time to consider finding a financial adviser that you can work with to build up a long-term relationship. It can be a valuable resource to have over time. You can find a list of certified financial planners on the Financial Planning Institute of Southern Africa’s website:

2. What does it cost to change my RA?

Q: I want to change my retirement annuity from Old Mutual to 10X Investments. What are the implications?

A: It depends on whether the Old Mutual retirement annuity is a traditional policy or investment-linked. If it is the latter, then there are no surrender fees and it is just a matter of filing in forms and waiting for the admin process to be completed. If, however, it is a policy that has surrender fees, you will have to pay these, which will reduce your retirement fund value. It is worth investigating further and to fully understand the financial consequences. If the annual fee is significantly lower with 10X and you have many years to retirement, then the payment of a surrender fee may be worthwhile. But do the numbers first.

3. How can I get better returns for my retirement savings?

Q: I have been saving R5 000 a month in an Absa Depositor Plus account for the last 24 months and my interest is not pleasing. I am thinking of diverting it either to increase my pension fund contributions or to invest in a tax-free savings account such as Satrix. I do already have enough money put aside for emergencies.

A: A product that earns interest rates like Absa Depositor Plus’ is great for short-term but not long-term investments like retirement for which you need your investment to grow faster than inflation. It is also worth meeting with a financial planner to find out how much you really need to be putting away for retirement. If you have a pension fund with your employer, this can be a very cost-effective way to increase your retirement benefits, as you receive a tax deduction up to 27.5% of your salary. You could consider putting a portion of the R5 000 into a tax-free savings account like Satrix that is invested in the stock market. You are limited currently to a maximum contribution of R33 000 per year (R2 750 per month) and although it is not tax deductible off your salary, the growth is not taxed which means it is available as a tax-free lump sum that you can access at any time. You could also use it as an additional investment for retirement, as you would then have an income from your pension as well as access to an additional tax-free lump sum. Again, a good financial planner would be able to provide a financial strategy to maximise both these options. What you do need to keep in mind with any market-related investments is that the value will rise and fall in the short term. Don’t panic if initially your investment on paper underperforms an interest-bearing account. Stay the course as, over time, the markets do outperform cash. Also remember that, when markets fall, your monthly debit order is effectively buying more shares or units as the price of those shares or units is lower.

4. Is a retirement annuity part of the deceased estate?

Q: My sister recently passed away. She did not nominate any beneficiaries on her retirement annuity but was married in community of property. She is survived by her husband and two children. Her husband has been granted the letter of execution by the master of the high court. Will the retirement annuity be paid to the estate because she did not list a beneficiary?

A: Retirement annuities fall under the Pension Funds Act and it is the duty of the trustees to investigate who the beneficiaries of the deceased were. The funds are then paid to the financial beneficiaries based on their need, so they would take the children’s needs into account and could allocate money to them. If the trustees are concerned that the funds may be misappropriated by the guardian or parent, they could elect to pay them into a beneficiary fund, which would pay a monthly income to support the children. However, the amount of money in the retirement annuity will also be a factor. 

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March 29 2020