OPTIONS ON RETIRING FROM YOUR EMPLOYER UMBRELLA FUNDS

Transcription

1 OPTIONS ON RETIRING FROM YOUR EMPLOYER UMBRELLA FUNDS

2 1 ALEXANDER FORBES OPTIONS WHEN RETIRING OPTIONS when you retire from your employer OPTION A OPTION B DEFER Do not want to start getting an income straight away GET PENSION Start getting an income straight away 1 2 Living annuity pension Guaranteed pension When choosing a pension, think about: How much money will you need every month and what is your cost of living? Could you risk exposing your savings to short-term stock market volatility and stay invested in the markets for longer? What is the current inflation rate? How is your health? What are the chances that you might live longer than you expect? Are you married and does your spouse need a pension if you pass away? If so, how old are you and your spouse? What financial position are you and your spouse in? How much savings do you have? Will you need to leave money in your estate to provide for your spouse and dependants? Speak to an accredited Alexander Forbes financial adviser.

3 2 ALEXANDER FORBES OPTIONS WHEN RETIRING BEFORE WE LOOK AT THE OPTIONS, what type of fund are you on? You have different options available to you, depending on whether you retire from a pension or provident fund. These options are: Provident funds Pension funds You can take your full fund credit as cash. You can use some of your fund credit as cash and use the rest to buy a pension. You can use all your money to buy a pension. Taxable amount R0 R % R R % R R % R % You can take up to one-third of your fund credit as cash. You must use at least two-thirds of your fund credit to buy a pension. You can use all your money to buy a pension. Rate of tax The value of advice The value of getting financial advice from a qualified, professional financial adviser cannot be underestimated and is highly recommended. They: are experts in their field and are dedicated to helping others reach their financial goals gather information that is relevant to develop a financial roadmap for you and make objective decisions on the most appropriate route to take assess the likelihood of reaching your goals and aspirations in retirement and help you structure your affairs to get maximum benefit from your hard-earned savings will also assess your other needs in retirement and make appropriate recommendations. i If you take cash, you will have to pay tax according to the table. When SARS determines the tax payable on the table, it will take into account previous cash lump sums taken from retirement funds and severance benefits from your employer.

4 3 ALEXANDER FORBES OPTIONS WHEN RETIRING LET S LOOK at your options on retirement in more detail. DEFER OPTION A Points to remember if you choose to defer retirement: You decide on the date you want to collect your retirement savings from the fund. You and your employer won t contribute to your retirement fund. Delay taking your retirement benefit You won t be covered for the fund s insured benefits. Your retirement savings will stay invested in the fund. There will still be investment fees and administration costs. You don t have to retire from your retirement fund when you retire from the service of your employer. You can elect to retire from the fund at a later date, that is, after the normal retirement age set out in your fund s rules. This means that you will retire from your employer at your normal retirement age, but you can keep your retirement savings invested in the fund until you choose to receive your retirement savings. i Positive or negative investment returns will be added to or deducted from your investment in the fund until your deferral date. You will remain invested in the investment portfolio you were invested in at the retirement date from the employer unless you make an investment switch. You will continue to have the same range of investment choice that active members have.

5 4 ALEXANDER FORBES OPTIONS WHEN RETIRING OPTION B GET PENSION 1 Living annuity A living annuity is an investment where the retirement money is invested after retirement to provide an income. Each year, you choose the amount of income you want to receive (within the regulated limits of between 2.5% and 17.5% of the remaining money), usually paid as a monthly income. Pension increases depend on how much of your remaining money you decide to draw each year. You decide how the money is invested in a living annuity, unlike a guaranteed pension. During your lifetime you have no access to the money paid to the insurer. You only have the right to be paid a pension, but any money that remains after death passes to your nominated beneficiaries. It is important to understand that you can easily run out of money if you draw too much of your money in the fund too soon in your retirement years. It s also only appropriate if you have sufficient money to invest. Living annuity options An in-fund living annuity. This means you can choose to stay as a member of the fund and get a pension from the fund. The most important benefit of getting a pension from the fund is the low investment fees: because of the economies of scale in a retirement fund, investment fees are generally far lower than the individual market. This type of pension allows you to leave your money to your beneficiaries, for example family members, if you pass away. This option is only suitable if you have enough money to invest. You need to have at least R of your money in the fund to use for your pension, after you have taken any money in cash, and any claims by your employer for fraud or wrongdoing and tax have been paid. You are encouraged to take advice from an accredited Alexander Forbes financial adviser to help you decide on the right pension for you. A living annuity. This type of pension is bought outside the fund from an insurer in your own name. This means that the investment fees are generally higher in the individual market. This type of pension allows you to leave your money to your beneficiaries, for example family members, if you pass away. This option is only suitable if you have enough money to invest (currently R after any cash has been taken and deductions, for example tax). You are encouraged to take advice from an accredited financial adviser to help you decide on the right pension for you.

6 5 ALEXANDER FORBES OPTIONS WHEN RETIRING Next steps 2 Guaranteed pension When you buy a guaranteed pension, the pension is paid for as long as you are alive. You may not leave money to your beneficiaries when you die. You decide how your increases are calculated. For example, these can be linked to inflation, be a fixed percentage or be linked to the returns earned on the investment portfolio the money is invested in. You can also choose for your pension to continue to be paid for a guaranteed time or to your spouse if you should pass away. The options that you choose will affect the monthly income that you can get from the guaranteed pension. An inflation-linked pension is guaranteed to keep up with inflation as pension increases are based on the inflation rate for the previous year. This does mean that the pension increases can be low (or even 0%) if the inflation rate is low. The starting pension is lower with this type of pension. The fixed interest pension increases each year at a fixed percentage that you choose when you buy the pension. The pension increases are predictable as they increase every year at the fixed percentage you chose but they may not keep up fully with inflation. The starting pension is lower with this type of pension. 1 For more information on our in-fund living annuity, please click here. 2 This is an important decision, so ensure that you speak to an accredited Alexander Forbes financial adviser. 3 You can then complete the retirement claim form. Some of the main types of guaranteed pensions are: A level pension pays the same income for the rest of your life and there are no annual increases. Because of this, the starting pension is higher but will not increase at all over time and will therefore not keep up with inflation. A with-profit pension allows you to share (with the insurance company) in the investment profits made on your pension portfolio. This type of pension increases in line with the actual investment returns, which means they can be higher or lower than inflation (and may not keep up with inflation). There can be a 0% pension increase in years where investment returns are poor. The starting pension amount and annual increases are declared by the insurer and are guaranteed. For any other queries, contact the Alexander Forbes Individual Advice Centre: Share call number: address: iac@aforbes.co.za Postal address: PO Box , Sandton, 2146 Alexander Forbes Life is a licensed financial services provider (FSP 1178). The information in this document belongs to Alexander Forbes. You may not copy, distribute or modify any part of this document without the express written permission of Alexander Forbes. Produced by Alexander Forbes Communications. Photos: Gallo Images AFRF-DBr-Retiring