A pension fund helps employees save enough money while they earn salaries. Their savings provide them with a nest egg to live off when they can no longer work.
Pension funds have become complicated and require a board of trustees to govern them in compliance with the law. Having trustees means you are in safe hands, and that applies to retirement, death, and disability.
What is not obvious is that pension funds promise no particular outcome at retirement. So you save into the fund, and whatever is in the pot is available as a pension on retirement.
In computer circles, people refer to GIGO (garbage in, garbage out). So if you don’t save enough, you won’t have enough to retire on. The onus therefore is on members to take responsibility for the result. Trustees manage the investments and get professional advice so members have simple options to choose from.
Members must watch their pension funds like hawks. If they aren’t accumulating enough, they need to save more.
There are two ways to do this. Increase contributions to the pension fund (new legislative changes have made this possible), or invest in a retirement annuity, which is a private pension fund. Tax-deductible benefits apply when contributing to either or both, and these have increased in recent years.
I am always amazed that people in their late fifties and mid-sixties often haven’t given serious thought to their financial position in retirement. They trust their pension fund to look after them.
All other savings you make are good as long as you hold on to them until retirement. Preservation funds were introduced in 1989 to allow people changing jobs to shift their pension benefits to a safe place so they are not tempted to spend them before retirement.
In 2019, Alexander Forbes announced that 6.19% of pension fund members would be able to retire with financial independence. This is an improvement on the previous figure of 5% in 1977. But in 42 years, there has been little improvement
So individuals need to take their savings into their own hands. To do that with success, regardless of your age, you must learn as much as you can about the products and how they work.
There are good financial advisors around. But unlike in the old cowboy movies, the good guys don’t wear white hats, and the baddies don’t wear black ones. Continuously asking awkward questions is the best way to evaluate your ‘suppliers’.
Resist the easy route – relaxing and accepting that everyone loves you and won’t take advantage. Due diligence is the name of the game.
Enjoyed this story? Get the whole paper first
The top stories and the whole edition, in your inbox the moment the new paper is out.
