Q & A PENSION II and PROVIDENT
Pensionable Salary vs. Total Cost To Company
Can I defer retirement?
Yes, the Fund allows members to defer their retirement, i.e. leave their accumulated benefit and continue membership with the Fund after reaching normal retirement age and leaving their employer. This means that you are no longer forced to take your retirement benefit from the Fund when you still have other sources of income and don’t yet need it. In the event of your death, the retirement benefit will be paid out to your nominated dependents. Should you become disabled, you can retire from the Fund and access the benefit. All the investment portfolios you had before reaching normal retirement age will remain available to you at date of retirement/deferment.
Factors to consider before switching your investment portfolio
Retirement fund investments are long-term investments. Although you are able to switch your portfolio/s as often as you like, you are cautioned against making regular changes to your investment portfolios. Portfolio selection should be done in line with your personal risk profile and you should only change investment portfolios when your risk profile or time horizon to retirement or exit changes.
It is strongly recommended that you obtain financial advice before deciding to choose between the available portfolios, as making uninformed decisions could work against the intention of the Trustees when they formulated these portfolios and may destroy rather than create long-term value.
Factors to consider when participating in Trustee Elections
The member-elected Trustees are your representatives on the Board of Trustees. You should therefore nominate someone who is responsible and honest, who will be able to represent your interests and who will be willing and able to perform the duties of a Trustee.
No persons can be elected as a Trustee if he or she:
- is disqualified from being a director in terms of an order under the Company’s Act, 1973 (this would typically be as a result of being convicted of a criminal offence involving dishonesty, fraud, theft, forgery or breach of fiduciary duty); or
- has been removed from an office of trust on account of misconduct; or
- is an un-rehabilitated insolvent; or
- is a minor.
Tax on withdrawal benefits?
Benefits taken in cash will be taxed as follows:
Lump sum withdrawal benefit | Tax liability |
---|---|
R0 to R25 000 | 0% |
R25 001 to R660 000 | 18% of the amount above R25 000 |
R660 001 to R990 000 | R114 300 + 27% of the amount above R660 000 |
R990 001 and above | R 184 950 + 36% of the amount above R990 000 |
The tax-free threshold of R 25 000 and tax table will be cumulative and will apply to the total amount of your withdrawals from funds in your lifetime. In addition, the tax concessions granted on withdrawal will reduce the tax concessions at retirement.
Tax rates and limits can change at any time so make sure you get up to date information on the effect tax on your benefits before you make any decisions. Therefore, if you elect to take your withdrawal benefit in cash, not only do you severely prejudice your future retirement savings, but you also significantly reduce the tax concessions that you will receive at retirement.
What are my options on retirement?
OPTIONS AT RETIREMENT
When you retire you stop working and your money starts working for you.
Your main considerations at retirement should be:
- Deciding if you need your retirement fund benefit or if you want to Defer your retirement,
- Deciding what portion of your benefit to take in cash (if any),
- Considering the annuity options available in the market as well as the Old Mutual Select Annuity (offered by your Fund) as an option,
- Considering all the costs associated with purchasing the annuity of your choice,
- Buying a pension/annuity that suits your needs,
- Making sure you pay as little tax on cash lump sums taken (as allowed by SARS).
Defer your retirement
The Fund allows members to defer their retirement, i.e. leave their accumulated benefit and continue membership with the Fund after reaching normal retirement age and leaving their employer. This means that you are no longer forced to take your retirement benefit from the Fund when you still have other sources of income and don’t yet need it. In the event of your death, the retirement benefit will be paid out to your nominated dependents. Should you become disabled, you can retire from the Fund and access the benefit. All the investment portfolios you had before reaching normal retirement age will remain available to you at date of retirement/deferment.
Take your benefits at retirement
It will be necessary to consider buying a pension with your retirement fund benefits. You will have various investment options and it is very important that you seek independent professional advice from an accredited financial adviser, in order to ensure that the investment of your Accumulated Credit in the Fund between now and your retirement is invested in line with your future financial needs. For example, if your financial adviser recommends that you should consider a living annuity, then you may wish to exercise Member Investment Choice and remain invested in a portfolio with higher exposure to equities and not participate in the default Life Stage portfolios that builds down to money market investments. The Fund’s default Life Stage Model moves your assets from high risk portfolios (with more exposure to equities) to low risk portfolios (with more exposure to cash and bonds) as you get closer to retirement. The Life Stage Model is suited for members who wish to purchase a guaranteed annuity or the Fund’s Old Mutual Fund Select Annuity when they retire.
Purchasing the correct pension will go a long way to make sure that your money lasts as long as you do. There are many different annuities to choose from. Here is an overview of the basic annuities available from most large insurers.
Level Annuity
Your monthly pension will remain exactly the same from year to year. This annuity therefore does not offer any protection against inflation. |
Fixed Escalation Annuity
Your monthly pension will increase at a predetermined rate each year, offering some protection against inflation. |
With-profit Annuity
Pensioners share in actual investment returns – even though the size of each increase is not guaranteed. This pension should keep up with inflation. |
Inflation-linked Annuity
Your monthly pension will increase at an inflation-related rate. This pension will keep up with inflation. |
Living Annuity
Your benefit is invested in the stock market and will therefor be affected by investment profits and losses. You can choose to draw between 2.5% and 17.5% from your capital as a pension income. The risk lies with you to ensure that your invetment keeps up with inflation and that your money lasts until your death. |
These are also annuities for life. With any of these annuities, you will exchange your retirement capital for a guaranteed income for your full lifetime. | ||||
Under the guraranteed annuities, your benefit stops when you die, unless you choose that it should continue to your spouse. You must make this decision when you buy the annuity. You can make provision for your dependants by selecting additional options such as “Joint and Survivorship” or “Term Certain and Thereafter”, or by choosing a Capital Preservation option. |
These annuities may be chosen on their own or in a combination, if your retirement benefit is large enough. Please speak to your financial adviser in order to establish which approach is most appropriate for your circumstances .
Why not consider the Old Mutual Fund Select Annuity
Since there are so many annuity options at retirement, making the right choice can be difficult. That’s why the ISASA Trustees offer you the Old Mutual Fund Select Annuity (FSA). The Trustees believe it is a good solution for many members because it is easy to invest in, and it provides a reliable monthly pension for life.
Best of all, it is cost effective because the charges you will pay are similar to those that are usually only available to staff of big companies, not individuals.
Benefits of the FSA:
- It is safe – as it will last your whole life;
- It is cost-effective – as it’s offered to you at good rates that would normally only be available to employees retiring from a big company; and
- It is trusted – it has been chosen by your Fund trustees and is offered by Old Mutual.
Members who are ten years from retirement will receive an FSA quotation via e-mail. The quotation will give you a good idea of what you can expect to receive as a monthly income after retirement, based on your current Accumulated Credit. Thereafter you will receive these quotes every six months until you retire.
Remember: The Old Mutual Fund Select Annuity does not replace personal financial advice. If you are unsure about any big financial decision, getting personal financial advice is always a good idea.
If the Old Mutual Fund Select Annuity sounds like it could be a good way for you to secure your retirement income for life, why not find out more by contacting Old Mutual at Old Mutual Fund Select Annuity Service Centre on 0860 388 873 or email FundSelect@oldmutual.com.
GENERAL
Disinvestment
Your benefit in the Fund is invested in accordance with your investment choice or in the default Life Stage Model. The benefit will be disinvested from the market when the administrator has received official notice that you have left the Fund via the electronic payroll notification. Once your benefit has been disinvested from the market, the benefit will remain in the Fund’s bank account until the administrators are in a position to pay your benefit. Interest will then be added to your benefit at call rates earned in the Fund’s bank account from date of disinvestment to the date of payment of the benefit. It is thus important that all relevant documentation related to the payment of your benefit and your retirement from the Fund be communicated to the administrator before you leave the Fund, failing which your benefit will remain in the Fund’s bank account.
Divorce Orders
If there is a Divorce Order against part of your benefit in the Fund, the Fund is obliged to settle the value of the Divorce Order before paying any benefits to you. Thus, if you elect to purchase a pension, the value of the divorce agreement will be deducted from your benefit before the balance is transferred.
CHECKLIST
To Do List | Why this is important? | Completed | |
Y | N | ||
If you are considering early or late retirement – you need to agree a retirement date with your employer | Talking to your employer and agreeing your retirement date will ensure that you leave the company on good terms. Remember to start the process at least 3 months before you intend on retiring. | ||
Know the value of your retirement benefit | Make sure you receive you benefit statement and check the value of your retirement benefit. Even if you have been a member of the Fund for a short period and you don’t consider your benefit to be that substantial, it is important to consider purchasing a pension income. | ||
Talk to an accredited Financial Advisor | Speak to your financial advisor about the various options and products you can use to purchase a pension. | ||
Make sure you are invested in the portfolio that is best suited for the annuity you will buy | Once you know which annuity product you will buy it is very important to make sure you are invested in the correct portfolio. This process should ideally start 7 years before you retire to ensure that your investment portfolio is aligned to the type of annuity you will purchase. | ||
Obtain quotes to purchase annuity products | It is important to obtain at least three quotes from various insurance companies so that you can compare products and costs. | ||
Make sure your tax affairs are in order | The speed of cash payouts is limited by the need to obtain a directive from SARS that instructs the Fund as to the amount of tax to be deducted.
If your tax affairs are not in order the payment of your retirement benefit could take a long time. |
||
Complete the retirement claim form | You can only complete this form once you understand all your options. The Employer must also sign and stamp the form.
Old Mutual needs to be notified by the 26th of the month in which you are retiring. |
||
Ask if you feel unsure about your options | If you feel unsure about your options you are welcome to speak with your local Bursar or contact the Fund directly. | ||
Annuity application forms | Please ask your accredited Financial Advisor for the applicable application forms and complete these and submit to your Bursar when you complete the retirement notification process. |
Please refer to the Fund’s Investment Booklet available on the Fund website for details of the Life Stage portfolios and how you will be invested over the seven years prior to your normal retirement date, should you not choose otherwise.
What factors to consider when thinking of taking early retirement
There are a couple of negative factors that you need to consider before thinking of early retirement:
Loss of future earnings: The earlier you retire the more certain you need to be that your savings will last until you die. You must accept that you are forfeiting the opportunity to increase retirement savings.
Reduction of income: You lose fringe benefits and often also employer contributions to your medical scheme. Your pension will invariably be lower than your salary at retirement.
The best financial years of your life: The last 10 years before retirement is normally a period when you have no dependent children, allowing you to increase your savings. You are also able to achieve the biggest growth on your investments due to the large capital that you have built up in your fund. This is when the full force of compound interest is at work.
Your level of debt: You should have paid off your debts by the time that you retire. You should postpone your retirement if you have a high level of debt. You will reduce your pension significantly if you use the lump sum benefit that you receive at retirement to pay off your debts.
Emotional preparation: Many people are simply not prepared for retirement and find it very difficult to adapt to a quieter life – some experience severe depression and a loss of belonging. Plan ahead and ensure that you have hobbies or activities outside the workplace that you would be interested in being involved in.
What is compound interest?
The graph below illustrates the impact of compound interest. Quite simply, compound interest is the process whereby interest is earned not only on the capital invested, but also on all interest earned previously as well. i.e. Interest on interest! No wonder Albert Einstein said that compounded interest was one of the strongest forces on earth. If you save a R100 per month for 40 years at 10% compound interest per year you would have saved almost R600 000. If you saved a R100 per month for 20 years and then left the money to grow for another 20 years your money would grow to almost R500 000. The last line shows that if you only start saving R100 per month from the age of 40 (for 20 years) you will only have saved approximately R90 000.
What is the Fund's default annuity?
Old Mutual Fund Select Annuity
Since there are so many annuity options at retirement, making the right choice can be difficult. That’s why the ISASA Trustees offer you the Old Mutual Fund Select Annuity (FSA). The Trustees believe it is a good solution for many members because it is easy to invest in, and it provides a reliable monthly pension for life.
Best of all, it is cost effective because the charges you will pay are similar to those that are usually only available to staff of big companies, not individuals.
Benefits of the FSA:
- It is safe – as it will last your whole life;
- It is cost-effective – as it’s offered to you at good rates that would normally only be available to employees retiring from a big company; and
- It is trusted – it has been chosen by your Fund trustees and is offered by Old Mutual.
Members who are ten years from retirement will receive an FSA quotation via e-mail. The quotation will give you a good idea of what you can expect to receive as a monthly income after retirement, based on your current Accumulated Credit. Thereafter you will receive these quotes every six months until you retire.
Remember: The Old Mutual Fund Select Annuity does not replace personal financial advice. If you are unsure about any big financial decision, getting personal financial advice is always a good idea.
If the Old Mutual Fund Select Annuity sounds like it could be a good way for you to secure your retirement income for life, why not find out more by contacting Old Mutual at Old Mutual Fund Select Annuity Service Centre on 0860 388 873 or email FundSelect@oldmutual.com.
Where can I complain if I am not satisfied with the manner in which my fund issues are handled?
The ISASA Pension Scheme and Provident Fund take your complaints and concerns seriously and it is therefore important that you share your experiences and interactions with us.
Should you wish to lodge a complaint, you may do so in one of the following ways:
- Email ISASA your complaint directly to ISASAComplaints@oldmutual.com
- Contact your Bursar who will direct your complaint to the relevant person at Old Mutual
- Contact your regional representative Trustee who will direct your complaint to the relevant person at Old Mutual
YOUR COMPLAINT SHOULD INCLUDE THE FOLLOWING INFORMATION:
- Your full name and contact information
- Your member and ID number
- Exact details of the complaint
- What outcome you expect
WHAT THE FUND WILL DO:
We will do our best to resolve the complaint within 10 working days and provide you with feedback. Some complaints are more complex and can take much longer to be resolved. If this is the case, your complaint will be escalated.
Once escalated there could be a further delay of 10 working days.
Escalations may be made to the Principal Officer, Mr John Rollason, on the contact information below:
Fax: 086 689 3134
Mobile: 082 442 4598
john@rollason.co.za
Once your complaint is resolved the Fund will:
- Provide you with full and appropriate redress should it be resolved in your favour ; OR
- Provide you with full reasons why your complaint was not upheld.
IF YOU ARE NOT HAPPY WITH OUR RESOLUTION:
If you are not satisfied with the feedback provided to you, you may contact the Pension Funds Adjudicator on the details set out below:
Telephone | 012 346 1738 |
Fax | 086 674 9372 |
Postal Address | PO Box 580
Menlyn Pretoria 0063 |
Physical Address | 4th Floor Block A
Riverwalk Office Park 41 Matroosberg Road Ashlea Gardens Pretoria 0081 |
enquiries@pfa.org.za | |
Website | www.pfa.org.za |