Frequently Asked Questions
1. What is the difference between a Pension and a Provident Fund?
The difference between a Pension Fund and a Provident Fund is mainly on the taxation and withdrawal benefits. On a Pension Fund, the monthly contributions towards your retirement are made on your disposable income (before tax) yet on a Provident Fund they are made after tax.
Withdrawal (Retirement/Resignation/Retrenchment): on a Pension Fund, the Employer contribution and interest earned is taxed on withdrawal yet on a Provident Fund you are paid your whole benefit as a lump sum.
Retirement: On a Pension Fund, your 1/3rd Benefit is paid to you as cash and you purchase an annuity with the remaining 2/3rd benefit. As a member you also have the option to buy an annuity using your whole benefit.
2. Why do I need to fill in the Beneficiary Nomination form if the Trustees will not automatically follow my distribution split but rather use their discretion to distribute my death benefit?
On the distribution of death benefit, the Retirement Funds Act, 2005 states that the Trustees should make the distribution in a manner deemed equitable. The Beneficiary Nomination form is used by the Trustees as a guide during the distribution. Beneficiaries that need more of financial provision are normally allocated a bigger benefit compared to those that are close to being financially independent. Members are then encouraged that when making the contribution allocation, they should include all those who are financially dependent on them and also make the allocation on the level of dependency.
3. Do I have the option to opt for my Fund Credit to be invested in growth assets (High Growth Portfolio) until retirement in the Life Stage Model?
The Trustees of the fund have the duty to ensure that they act in the best interest of the members of the fund. One way in which they do that is how they invest the member’s retirement savings. The Life Stage Model was designed in a way that is aggressive for the younger members and safeguards the benefit of those close to retirement. However an individual member can give an instruction to the fund to invest their fund credit in a specific portfolio.
4. How is my benefit paid out if I withdraw from a Pension Fund yet I qualify for early retirement?
If you withdraw from a Pension Fund other than retirement yet you qualify for early retirement, your benefit can either be transferred to a preservation fund or another retirement fund. You can also opt for your benefit to be paid to you; however you should be aware that the benefit will be taxed before being paid to you, which is disadvantageous because you loose a big part of your fund credit to tax.
5. How much should I save for my retirement?
The Alexander Forbes research states that in order to have a reasonable standard of living at retirement, you should aim at replacing your last salary by 75%. If you are planning to:-
• retire at 65 – you should have at least 10 Xs your annual salary at retirement
• retire at 60 – you should have at least 11 Xs your annual salary at retirement
• retire at 55 – you should have at least 12 Xs your annual salary at retirement
6. Is a Disability Benefit in the Fund the same as Workman’s Compensation?
Disability Insurance in a fund is different from a workman’s Compensation Payout. A member can claim from both the Disability Insurance in the fund and the Workman’s Compensation.
The Workman’s Compensation is an insurance that provides cash/medical care to an employee by the employer for injuries or illness you incurred as a result of your job. Employers pay for this insurance and employees are not required to contribute to the cost of compensation.
The Disability Insurance from the Fund provides insurance for members of the fund in the event they get disabled and cannot perform their occupational duties. This insurance pays until you get better to return to work or until your retirement. The premiums for this benefit are normally paid from the employer portion contributed towards the member’s retirement savings.
7. Can I borrow from my retirement savings?
The Retirement Funds Act, 2005 states that a fund may grant a loan to a member as an investment or issue a guarantee so that a member may obtain a loan to purchase/ build/ make additions or alterations to his/her home. The loan shall not exceed 60% of the member’s cash withdrawal benefit in the fund calculated as if the member has withdrawn on the date the loan was granted.
8. Is my benefit taxed if I transfer it to a Preservation Fund or another Retirement Fund?
If you are on a Provident Fund, when transferring your benefit to either a Preservation Fund or another registered Retirement Fund (Pension or Provident); your benefit will be transferred tax free.
If you are in a Pension Fund, when transferring your benefit to either a Preservation Fund or another Registered Pension Fund, your benefit will be transferred tax free. However if your benefit is transferred from a Pension Fund to a Provident Fund, your Fund Credit will be taxable.
9. How is my death benefit paid out to minor dependants?
The Trustees of the Sibaya Umbrella Fund have appointed the SRIC Beneficiary Fund to provide Beneficiary Trust Services. All benefits belonging to minors are paid to the SRIC Beneficiary which manages the funds. The minors’ Guardian is then responsible for getting hold of the funds as and when the minor needs them. The Guardian should provide solid proof of why the funds are needed to avoid misuse of the funds. When the minor reaches 18 years, SRIC pays out the remaining benefit to him/her as they are considered to be a major dependant.
10. Does my Retirement Benefit form part of my estate?
The Retirement Funds Act, 2005 stipulates that a retirement benefit does not form part of a member’s estate, hence its distribution to beneficiaries and nominees is different from that of an estate. Where there are nominees, but no dependants, the benefit is paid to the nominees in the proportions nominated by the member. Provided that where the member’s estate is insolvent, the debts of the estate are to be settled first. Where there are neither dependants nor nominees, the benefit shall be paid to the member’s estate, or into the Insurance and Retirement Benefit Trust Account.