The South African government has been in discussion since 2011 about introducing extensive retirement reforms to promote a culture of retirement savings.
Many of these reforms were initiated, with the latest being the annuitisation of provident funds.
Ridhaa Damon, MD and Head of Advisory of Lionwealth Capitol, says this was needed as unfortunately too many South Africans have a spending culture and sadly too many retire poor because of bad financial decisions made in their younger days.
T-day!
Damon went on to explain what T-day is in the insurance industry.
1 March 2021 is T-day. This is the day when it will become a requirement for provident funds to be annuitised upon retirement.
This means that all the different types of retirement funds such as retirement annuity funds and pension funds will now be aligned with provident funds.
From T-day onwards, upon retirement, provident fund members will be able to take a lump sum equalling one-third from their fund, and then structure a monthly income (annuitise) from the remaining two-thirds.
Please note that the above applies to the retirement event.
Should you leave your provident fund due to resignation, retrenchment or dismissal, a withdrawal option is still available to you, and is unaffected by the annuitisation referred to above.
It is important to understand that the new requirements will not apply to what is known as “vested” benefits, or those benefits accumulated before T-day and any investment growth on those benefits after that date.
The new requirements will apply only to “non-vested” benefits, which are the contributions and investment growth on those, which accumulated in the fund after T-day.
With this, it is extremely important before making any and all financial decisions, to speak to a qualified and knowledgeable financial advisor.
Here are five financial planning tips:
1. Start a retirement annuity as early as possible in your working life, even if you have a pension or provident fund through your employment.
Those alone are often not enough to retire comfortably.
See it as your younger self paying your older self a salary.
Work hard and save when you are young and have the energy.
You may not see it now, but your older self will be very grateful.
2. Insure your income. It is the one thing that pays for all your expenses, including your insurance. Ask your Financial Advisor about income protection.
3. If you resign or are retrenched and not at retirement age yet, preserve as much of your pension or provident funds for retirement.
If possible, try not to access it at all until you retire.
4. Increase your Retirement Annuity contribution annually by as much as your pocket will allow. You may claim a tax rebate for up to 27.5% of your income on an annual basis.
5. First step to proper financial planning is to create a budget.
It helps you understand your finances better and distinguish between which expenses are necessary and which are wasteful.
Generational practices don’t always work anymore.
Many people have the idea and expectation that they are going to live with, and be taken care of by their children in their old age, and therefore they don’t need to save for their later years. While this can work out for some people – for most, it doesn’t.
The cost of living is rising, adult children have lost their jobs and are struggling just to keep head above water.
Unemployment, drug addiction, alcoholism and other social ills see many elderly parents end up taking care of their children and grandchildren, instead of the other way around.
We don’t know what the future holds, but we do know that we would like to live comfortably in it.
Recklessly spending money when we could be saving it for later in life when we need it most, is just irresponsible.
Yet, many of us may be doing that simply because we don’t have the guidance on how to save for retirement.
My take on things is simple – when you need advice in anything, go to a professional.
We make use of outside guidance and advice for everything these days, from make-up, dressing, what we eat, how we eat it, what we drive, how we drive it, where to buy a house, how to raise our children.
The point is, we get advice from those in the know.
So why are we so reluctant to get advice from financial experts when it comes to our money, and what we do with it?
With the internet and social media at our fingertips these days, a lack of information cannot be used as an excuse.
You can visit www.lionwealthcapitol.co.za for more information on retirement funds, investments, savings and budgeting and better secure yourself for your old age.
The future is uncertain, but we can still plan for it as best we can.