In a matter of two pension funds in one company, a Fin24 reader looks to an expert on pension planning and preservation funds and which is best during Covid-19.
I bought an annuity for pension planning and later resigned from my job, where I took one third of my lump sum, which is taxable. I then moved to a preservation fund with my remaining lump sum - which was two-thirds of my resignation package.
I then bought preservation with R500 000 in an investment portfolio managed by the assurance company.
My initial annuity remains intact after my resignation with R30 000. According to the company, this will continue as a paid-up insurance pension plan, even when I do not make monthly payments.
What will happen when both pay out at when I am 55 years of age?
Which financial plan can reduce a burden of undergrowth, stagnation or just making little interest over time?
What advice can you offer in the context of Covid-19 and its impact on world markets?
Hester van der Merwe CFP®, Financial Planner of the Year and financial planner for Ultima Financial Planner, responds:
Thank you for your questions. I will answer the questions one-by-one for ease of reference.
"What will happen when both pay out when I am 55 years of age?"
You do not have to retire from your funds at 55 if you do not need to do so. If you are still working, you may postpone retirement until you need the income. This will give your funds more time to grow before you start drawing an income.
When you decide to retire from your funds, you may take a cash lump sum of up to one third of the fund value. If your preserved fund is in a provident preservation fund, you may withdraw up to 100% as a lump sum. However, any lump sum will be taxed according to the table below.
It is not clear when you took the resignation lump sum, but it is very important to note that with the application of the above table all other retirement fund lump sum withdrawal benefits accruing from March 2009, all retirement fund lump sum benefits accruing from October 2007, and all severance benefits accruing from March 2011 must be aggregated when the tax is determined.
I strongly recommend that you approach a Certified Financial Planner® when the time comes for you to retire from your funds to ensure that you make an informed decision regarding withdrawal of any further lump sum.
“Which financial plan can reduce a burden of undergrowth, stagnation or just making little interest over time?"
The proper allocation for your funds will depend on how much risk you can afford to take (risk capacity), the growth you require to meet your retirement goals and objectives (risk required) as well as your ability to tolerate market movements in your investment portfolio (risk appetite). All these factors, together with applicable legislation should be taken into account to determine the best portfolio for your needs.
After retirement you may also consider a fixed annuity that will provide you with an income for the rest of your life. The income will be determined by factors such as (but not limited to) your age, current rates, if you need to include a guarantee period and the annual increase on the income.
A Certified Financial Planner® will be able to assist with the above options.
“What advice can you offer in the context of Covid-19 and its impact on world markets?"
If we look at the history of the financial markets (and the world at large) over the past 100 years, it is clear that there is always something happening that can upset the financial markets. It is always best to have a good long-term financial plan, taking your goals and objectives into account.
Ensure that you have selected appropriate instruments and funds and then stick to it. Making emotional decisions based on current events can be very detrimental to your portfolio.
Happy planning and retirement!
Questions may be edited for brevity and clarity.
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