What are you going to do with your pension fund when you retire?

Getting your pension fund in order when you are about to retire can require some special considerations. Due to regulations your options are limited. Of course you will want to make a choice that will allow you to grow and protect the capital you have built up over the years. We can help you with this.

If you have been contributing to a FSB registered pension fund then this is what you can do:

Once you retire you able to withdraw a third of your pension fund share of which only R500 000 is tax free. This you can invest independently or use it at your leisure. If you have been contributing to a provident fund you can withdraw the entirety of your savings and invest it but only a portion of R500 000 can be withdrawn tax free. After this you will need to move your remaining capital into a different type of investment unless your pension fund or employer has made facilities to protect, manage and pay your pension after you stop working. The regulations for these funds leave you with two options.

You can purchase a fixed life annuity which is a policy administrated by an insurer. The insurer promises to make a series of determined future payments to you in return for your share of your pension fund at retirement paid in full. This guarantees you an income that may or may not be tied to inflation until your death. But once you have purchased a fixed life annuity all that capital you have built up now belongs to the insurer. You will enjoy a guaranteed income but you cannot earn interest or profit, or benefit from it any longer.

The other option is a living annuity. In this type of annuity your capital is invested and earns interest, dividends and other income from which you can elect to withdraw a percentage every year that can be paid annually or in monthly installments. A living annuity is still a policy that you purchase but the capital that you have built up still works for you during your life and for your beneficiaries after you. The downside to a living annuity is that you have to make sure your capital is invested well and that you withdraw an appropriate percentage each year or you may deplete your capital and impair your future income. Taking on the responsibility of choosing a living annuity over a fixed life annuity is a large one but this decision keeps you in charge of your financial destiny and your pension capital.

A well managed living annuity can provide you with an income that does not deplete your capital and will allow you to enjoy your retirement with peace of mind that your hard earned capital is still working profitably for you. Another advantage to choosing a living annuity is that it will remain effectively yours and does not form part of your estate so the benefit of it would become readily available to your beneficiaries when you pass away. In essence, your capital lives on to provide for your beneficiaries.

Let us help you choose the right solution. If you are interested in a fixed life annuity then contact us and we can facilitate it for you. In most cases we believe that a living annuity is the most appropriate option to invest your pension capital. If you are interested in one let us talk to you about our Living Annuity underwritten by Sygnia Life Limited. It offers a choice of portfolios that are geared towards capital growth and preservation as well as exposure to offshore investments.

If you have special investment needs or requirements please contact us so together we can explore the options best suited to you. If we cannot already provide an appropriate solution for you then let us try and create one.

Correct and up to date as at 1 July 2014.
VPM Sygnia Living Annuity: Fact Sheet
Financial Security for Retirement


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