Your retirement fund options explained

THE new Two-Pot Retirement System has reshaped how South Africans access and preserve their savings, applying across all retirement funds.

- ALEX ODENDAAL

Whether you're in a pension, provident, preservation fund, or retirement annuity, understanding how these vehicles work and the impact on your long-term financial security is essential.

Pension Funds

Pension funds are occupational retirement funds, typically offered as part of your conditions of employment, and, in most cases, membership is compulsory when you join a company. Employees contribute monthly, and depending on the rules of the fund, employers may also contribute on your behalf. Members often have flexibility in choosing their contribution rate, subject to tax-deductible limits of up to 27.5% of taxable income, capped at R350 000 per year.

Each pension fund is governed by a board of trustees, which must act in members' best interests and who are responsible for setting the fund's investment strategy. Importantly, pension funds are governed by Regulation 28 of the Pension Funds Act, which allows for diversification but can also limit offshore exposure. When leaving employment, pension fund members can:

When leaving employment, members can:

At retirement, you may take up to one-third of your savings as a cash lump sum, taxed per retirement fund tables, while the balance must be used to purchase an annuity income for retirement. Note that if your fund is worth less than R247 500, you may withdraw the full amount.