These retirement fund trends could mean big changes to your savings

Watch out for these retirement fund trends if you want to retire comfortably one day: the two-pot system, increasing digitisation and new annuity options.

The decisions you take now based on these trends, will affect your life for years to come.

According to the South African Treasury, only 6 out of every 100 South Africans will be able to retire comfortably. What will happen to the other 94?

The two biggest reasons that retirement fund members do not have enough money to retire on are that they do not save enough and fail to preserve their retirement assets when they move jobs, spending their pension pay-out instead of adding it to their pension fund at a new employer.

“If you think you can easily catch up on your retirement savings by making additional contributions later, you are in for a rude awakening. Depending on when you start contributing again, the required rate could be anything, ranging from 17% to 50% of your salary,” says Craigh Chidrawi, executive head of retirement at NMG Benefits.

He says one of the positive effects of Covid-19 was that it made South Africans more aware of the need to put themselves on the road to good financial health and a comfortable retirement and to do this, it is important to know the key trends in the retirement fund industry right now and how they affect you.

The ‘two-pot’ system

Government’s proposed new ‘two-pot’ retirement system, currently set for 2024, tries to balance the need to survive financially now as well as after retirement.

“Basically, the system will see you put one-third of your retirement contributions after the effective date into a savings pot that allows early access and two-thirds in a pot that is used to buy an annuity after retirement.

ALSO READ: Ten top tips for making the most of the planned two-pot retirement savings system

“The benefits are that it will prevent people from having to take out expensive short-term loans, while being forced to preserve two-thirds of their funds over the long term and not cashing in when they change employers. The downside is that any withdrawals are fully taxed and erode your capital,” he says.

Increasing digitisation

The retirement fund sector is rapidly digitising, just like all other sectors. This means retirement fund members can more easily monitor their funds’ performance and will be able to have greater insight when they discuss their options with a retirement counsellor.

ALSO READ: Four easy ways to win the retirement savings battle

Using digital tools to understand the retirement income you are likely to receive is an important part of proper retirement planning, Chidrawi says.

More annuity options

He points out that the days of being locked into a retirement income that was chosen for you are over.

“There are various forms of guaranteed retirement annuities that provide an income for life (and your spouse’s life, if you elect this option), or pay a lump benefit on death.”

Chidrawi says consumers should get advice on which works for them as they can choose from options that can secure your fixed living expenses via a guaranteed annuity to ensure these costs are covered for life, while buying a living annuity with any residual capital to be able to leave some sort of financial legacy for your family.

ALSO READ: How to ensure your financial service provider is legit