South Africa is very unique in the way its pensions are administered. Unlike the vast majority other countries in the world, over 60% of South African retirement funds are privately administered and funded. South Africa has no compulsory or national pension fund scheme. However, the Government does provide retirement schemes for its employees.
For the 60% or more of the workforce in South Africa, who wholly rely on privately provided pension schemes for retirement, they have the following options available.
Retirement Funded Employment (Company Pension Funds)
An employer can provide a pension scheme for its workforce. The company providing employment will contribute to the Fund and the individual employee can contribute up to 7.5% of their retirement-funding income - which typically includes income such as travel allowances.
On retirement, the occupational pension fund normally pays an annuity based on the defined contributions.
If an individual leaves the company before reaching retirement age, they will receive their full contributions to the pension fund - plus investment growth.
These funds are not subject to compulsory preservation, but if they are transferred into another retirement fund, the tax benefits of such retirement funds are fully preserved.
Umbrella Pension Funds
Umbrella Pension Funds are operated with multiple employers and are solutions designed to benefit smaller employers. However, Umbrella Pension Funds have come under heavy criticism in recent times.
Provident Funds are separated from pension funds by one major characteristic - you can withdraw the entire lump sum of your contributions to the fund immediately upon retirement. Whereas in a pension fund only one-third of savings can be withdrawn as a lump sum and the remaining two-thirds of a pension fund, must be preserved and paid out as an annuity on a monthly basis after retirement.
When members exit a retirement fund before retirement date, their contributions can be transferred to a preservation fund. The member can make one withdrawal before the remaining funds are held in the preservation fund until they reach retirement age.
Retirement Annuity Fund
RA Funds are taken out in the name of the individual holder. Retirement Annuity Funds have additional tax enticements which help to persuade holders in saving over and above the standard contribution amounts for retirement.
A retirement annuity offers flexible means for the individual:
• to build up retirement savings in their own right
• to elect when to take retirement (any age after 55
• to make an informed choice of the size of contributions they deposit
• to select investment portfolios which suit their risk and maturity profile
• to stop payments into the RA Fund, or to increase contributions, with no penalties attached.
Speak to a deVere Acuma pensions expert today and receive the best pensions advice for you, allowing you to make the most of your golden years.