Don't outlive your money
Finweek English|22 October 2021
Make the right choices in retirement by keeping a keen interest in your post-retirement investments.
Amanda Visser

The term retirement is superfluous for most South Africans, mainly because of bad savings advice or because of no saving at all. However, for those who can retire, it is critical to continue managing their investments and to have a keen interest in what they invest in.

Reforms to align South Africa’s retirement fund rules have been on the agenda for almost a decade. The long-awaited annuitisation of provident funds was only adopted into legislation in March this year.

All retirement funds are now aligned and a retiree may receive one-third of their retirement savings as a lump-sum payment while the rest will be preserved for future income needs in a personal retirement savings product such as living or life annuities.

Retirement savings

Political rumblings about access to the retirement pot in SA have created a great deal of tension in recent years. The socio-economic situation and political instability in the country have seen a massive rise in emigration and very wealthy South Africans and their money have already left.

Cheryl Howard, independent fiduciary training and business coaching specialist, said at the SA Institute of Taxation’s annual Tax Indaba that younger people seem to be loath to invest excess savings into retirement products. The current limit for contributions is 27.5% of total annual income, capped at R350 000 per year. This has not been adjusted since 2016.

Howard says the retirement industry for younger people – between 30 to 45 years – seems to be diminishing. Some experts believe it can become non-existent because people are looking at alternative savings options.

The three-year rule on emigration and the latest proposal to include retirement savings in the so-called “exit tax” payable on emigration raise important questions. If an individual is going to stay in SA for the remainder of their life, they will probably invest in retirement products. They will probably also make use of the benefits of investing more than the allowed contributions.

These benefits include reducing your tax bill in future years or reducing your tax bill when you withdraw or retire from a retirement fund.

However, if people are not sure whether they are going to stay in SA for the remainder of their lives, they are more likely to stay clear of retirement savings. This is quite unfortunate, since growth in the underlying investments of retirement products are not subject to tax and there is a generous tax deduction on contributions, says Howard.

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