Being a member of a group retirement scheme as part of the employee benefits your employer provides is a great way to save for retirement. Before your money is invested, there are certain deductions made for costs involved with retirement funds, one of these is for administration fees. Administration fees cover:

• collecting, allocating and investing your monthly contributions, as well as your employer’s monthly contribution,
• managing the benefit and product options available to you in your retirement fund,
• investment management fees if your retirement savings are invested in external investment portfolios not provided by the insurer managing your retirement fund,
• administering additional benefits, like retirement-fund-backed housing loan guarantees or other value-added benefits,
• the costs of managing separately insured benefits provided by your retirement fund.

Umbrella funds are managed by a central board of trustees, representing the best interests of all the employees whose employers participate in the umbrella fund. Because of this, there is no need for each participating employer to have its board of trustees, but there is still a need to have a group that makes sure that the needs and interests of their employees are addressed. Therefore, the General Rules of most umbrella funds allow every participating employer to appoint a management committee called an advisory body.

Usually members of the advisory body include employee rep employer representatives and may also include the financial adviser of the employer’s group scheme.

Your death benefits are either approved or unapproved. Or part of your benefit may be approved and part of it may be unapproved.

Approved benefits are where the death benefit is provided through your retirement fund and the trustees decide who it is paid to, and how much each dependant and beneficiary receives.

Unapproved benefits are provided through a policy in your employer’s name. Your unapproved death benefit will be paid to the beneficiaries who you have nominated.

Don’t worry about the term ‘unapproved’. It just means the benefits are not provided through a tax-approved retirement fund.

The two benefits are also taxed differently. The premiums paid to an approved fund are tax-free up to a certain level. But the lump sum is taxed when paid.

You pay tax on the premiums for unapproved benefits but your beneficiaries don’t pay tax on the lump sum when it is paid.

Whether it is an approved or unapproved benefit, it is still very important to complete a beneficiary nomination form, supplied by your retirement fund or employer, to share your wishes of who should receive the benefit if you pass away. Recent legislative changes make this particularly important for unapproved benefits, as the benefit will be paid into your estate if you haven’t nominated beneficiaries.

This means the benefit will reduce due to the expenses involved in finalising your estate. More importantly, your loved ones will not have much-needed finance when they really need it as an estate usually takes a long time to wind up.

An annuity is a monthly income for retirement. When a pension or provident fund member reaches retirement, the law says they need to use at least two-thirds of their retirement savings to buy an annuity. There are different types of annuities. The two main types are life annuities, which include with-profit annuities, and living annuities. It’s important to understand the differences between these annuities and make the choice that is best for you.

Like most people, you will need an income when you retire and no longer earn a full-time salary. Buying an annuity from an insurer, using a portion or all of the retirement savings you built up while you were working, can give you such an income. There are different types of annuities that you can choose, depending on your needs.

• A guaranteed life annuity pays you a guaranteed income for life. The insurer guarantees that the income you receive will never reduce for as long as you live, so you can’t outlive your income. You determine your annual increases upfront – you can choose no increase, a fixed percentage (for example, 5%), or an inflation-linked increase (based on the consumer price index figures.
  
  You can choose to have your income paid for a minimum term (also called a guaranteed period). If you pass away before the end of the guaranteed period, your income will be paid out to your beneficiaries or estate.


• A living annuity is a market-linked investment that gives you a regular retirement income while at the same time aiming to grow your retirement savings. You invest your retirement savings with an insurer and you carry the investment risk of how the portfolios perform. You choose where you want your money to be invested and you
  
  choose the monthly income amount you want to receive once a year, within certain regulatory limits.
  
  There are no guarantees with living annuities, so you need to be careful not to draw an income that is higher over time than your portfolio’s investment growth, as your savings could then run out while you are still alive.


• A with-profit annuity, like a guaranteed life annuity, also pays you a guaranteed income for life. The insurer guarantees that the income you receive will never reduce for as long as you live, so you can’t outlive your income. But, with-profit annuities differ in that increases are declared once a year by the life insurer.

You can choose to have your income paid for a minimum term (also called a guaranteed period). If you pass away before the end of the guaranteed period, your income will be paid out to your beneficiaries or estate.

An asset class is a group of investments that have similar characteristics and are subject to the same laws. The main asset classes for retirement savings are equities, bonds, and cash.

As your life changes, so do the people who are important in your life, as well as your personal and contact details. That’s why it’s important that you update your and your dependants’ and beneficiaries’ details regularly.

Beneficiaries are the people you nominate to receive your death benefit after you’re gone.

If you have an approved death benefit, the trustees of your retirement fund will first make sure that your dependants are financially taken care off through your death benefit, and then divide any leftover money between the beneficiaries you have nominated who are not necessarily dependants.

If you have an unapproved death benefit and have not nominated beneficiaries, the benefit will be paid into your estate.

These benefits are not covered by your will so it’s essential that your retirement fund knows who your dependants and beneficiaries are. Otherwise, the benefit will reduce due to the expenses involved in finalising your estate. More importantly, your loved ones will not have much-needed finance when they really need it as an estate usually takes a long time to wind up

Like your day-to-day bank statement, your benefit statement gives you information about all the benefits you have through your employer. It is a treasure trove of information that can, if well-understood, help with your financial planning.

Your benefit statement shares information on important benefits your employer provides, like retirement benefits and group insurance benefits like death, disability, critical illness and funeral benefits. If you are fortunate to belong to one of the top umbrella funds, you will also get information on value-added benefits available through the umbrella fund.

Benefit statements are available as printed or pdf statements, but nowadays the top umbrella funds offer a digital benefit statement which offers real time information on your benefits which you can get through your PC or mobile phone.

Go through your benefit statement with a fine-tooth comb, like you are reading your child’s report. You may discover benefits you never knew you had, and it will really help when you plan your finances.

Links to Pension Funds Act, trustee, default investment management portfolio.

The board of trustees are the people who manage your retirement fund. The Pension Funds Act says every retirement fund must have a board of trustees.

Each trustee has a legal responsibility to always consider the best interests of you and your fellow members in every decision they make. Important decisions vary from choosing the default investment management portfolio to making sure the fund remains financially sound to determining how death benefits should be paid.

Bonds are an important asset class for retirement fund investors. With a bond, you’re like a bank. You lend your savings to a borrower, like the government or a company, who promises to pay you the money back in full with regular interest payments on specified dates. These regular payments are your return on investment (ROI) which grow your retirement savings

Cash is an important asset class for retirement fund investors. A low risk, low return asset, cash is usually the safest asset class in the short-term as its value does not fluctuate.

A claim is when you or your beneficiary ask that the benefits you have through group insurance policies with your retirement fund or employer is paid. This term is usually linked to payments for death, disability, critical illness, funeral benefits and medical aid claims for healthcare expenses you’ve paid.

For the claim to be paid, it needs to meet the conditions set out in the policy document.

The insurer may ask for certain information so that they can make sure the claim meets these conditions before they pay it. The sooner you supply this information, the better as it will make sure the claim is paid quickly.

Have you ever heard someone talk about the magic of compound interest or that it is the eighth wonder of the world? Compound interest is simply earning interest on interest. It helps even a small investment grow into a much larger amount over time. The longer you keep your money invested, the more compound interest you should earn.

Compound interest is the reason you should start saving for retirement as early as possible. The longer you have your money invested, the more it will grow.

Here is an example to show the power of compound interest. Say you are 35-years old and are saving R500 a month because some of your expenses reduced in 2021 due to lockdown restrictions, for example, lower petrol costs as you are working from home. If you invest this, you will find that this small amount will grow to the much larger amount of R1,031,422 by retirement, thanks to compound interest (if your return is around 10% per year). Wow! That’s a lot of extra money for you in retirement.

Every month, you, and/or your employer, contribute towards your retirement savings account. This amount is calculated as percentage of your monthly pensionable salary. This percentage can vary from employer to employer and you can also choose your percentage within the special rules of your scheme.

Some retirement funds also allow you to make voluntary contributions. These are additional contributions to your retirement savings, so you save more for retirement. These additional contributions can be monthly or a once-off lump sum.

Contributions go into your retirement savings account (RSA) and your savings for retirement grow from the returns and interest earned on these amounts.

When an employer talks about benefits for working for the company, these are generally included in the remuneration package your employer offers. In short, it’s the total costs your employer is paying to employ you. That’s why it’s called cost to company.

Cost to company salary is your gross salary before deductions. Pensionable salary is a percentage of your cost to company salary. For example, your pensionable salary may be 80% of your cost to company salary. Your retirement fund contributions are based on your pensionable salary, not your cost to company salary. So, you may be saving less for retirement than you think.

This benefit helps an employee with potentially overwhelming expenses and lifestyle adjustments caused by a critical illness or condition. This is a benefit that pays a lump sum amount when an employee is diagnosed with or suffers one of the conditions listed in your policy, such as cancer or heart disease.

The benefits you have through your employer may include a lump sum death benefit. Anyone who has lost a loved one and breadwinner due to Covid-19 or any other serious illness or injury knows just how incredibly important these benefits are.

A lump sum death benefit is made up from a multiple of your pensionable salary, plus the money in your retirement savings account, if you are a member of a retirement fund with retirement savings.

This multiple is decided by your employer. You may have a death benefit based on 1 x your annual pensionable salary, or it may be 3 x your annual pensionable salary. This lump sum is paid to your dependants and beneficiaries should you pass away.

Your death benefits can be approved or unapproved. These classifications impact on the process for paying this benefit to your beneficiaries and dependants, and how the benefits are taxed.

The Pension Fund Act says every retirement fund must have a default investment portfolio. If you do not actively select an investment portfolio for your savings, your contributions are automatically invested in the default portfolio. The trustees that manage your retirement fund draw on expert advice and think carefully about which portfolio is the best choice as a default portfolio for you and your fellow members

This benefit helps an employee with potentially overwhelming expenses and lifestyle adjustments caused by a critical illness or condition. This is a benefit that pays a lump sum amount when an employee is diagnosed with or suffers one of the conditions listed in your policy, such as cancer or heart disease.

• Legal dependants: someone you are legally required to look after financially, such as your children, your parents, your grandparents or your grandchildren.


• Factual dependants: someone who you are not legally required to look after but who was in fact financially dependent on you and received some form of regular financial support from you at the time of your death. This could be your former spouse or a poor relative including your brother, sister, uncle, aunt and even the children or grandchildren of said relatives.


• Spouse dependant: While this generally refers to one’s wife or husband, this could also extend to a life partner who has committed themselves to you either in a legal sense or even a cultural or religious one.


• Child dependant: A child dependant includes your biological children, whether born from outside your marriage or after your death, as well as adopted children. Even if you have no legal duty to support your older children, this category includes all your children, even if they are older, as potential beneficiaries.


• Future dependant: someone who you would have been responsible for in the future had you not died. This could include your fiancé, your unborn child, your elderly and increasingly impoverished parents and someone who has applied for a maintenance order against you can qualify.

Along with your retirement benefits, your employer may also offer group insurance benefits, such as death, disability, critical illness and funeral benefits.

When it comes to disability benefits, these can be paid as a monthly income benefit and/or a lump sum.

If paid as a monthly income, it is usually a percentage of your income before you became disabled. This is usually around 75% or 80% of your income.

This is very helpful if you cannot work for a while, as the income disability benefit provides a level of income until you can return to work or retire.

Your employer may also provide a lump sum disability benefit.

There are some conditions that need to be met before disability benefits are paid. These are outlined in the policy your employer puts in place.

It’s important to have a diversified investment portfolio when it comes to investing your retirement savings. This means that instead of putting all your money into a single company, industry sector or asset class, the experts that manage your money and make it grow spread the money across a range of suitable companies, industries and asset classes. In this way, when one investment does not perform well another better-performing investment can compensate.

This strategy helps to manage risk. It’s a bit like not putting all your eggs into one basket.

According to the Divorce Act, retirement benefits generally form part of the marital assets in a divorce that must be considered when dividing up the assets. However, when couples are living together as ‘husband and wife’ but have not married under a legal Act of Parliament, the spouse who is not a member of the retirement fund cannot claim a portion of the retirement benefit as there is no marriage that can be dissolved in terms of the Divorce Act.

A relevant legal Act of Parliament is the Marriages Act or Recognition of Customary Marriages Act and the Civil Union Act.

The pension interest is the amount of money a spouse would have received from their spouse’s retirement fund if they had theoretically resigned on the date of divorce. Spouses can claim anything from 0.1% to 100% of their spouse’s pension interest. However, this does not mean that the retirement fund member needs to dig into their retirement savings to pay their former spouse. They can pay the amount their spouse would have received from the retirement fund from other assets in the estate.

Equities, also known as shares, are one of the main asset classes that your retirement savings are invested in. Buying equities means buying a share in a company. These high growth assets increase in value as the company’s value increases.

Equities tend to earn high, inflation-beating returns over time. This makes them a great place for long-term investments like retirement savings because your money maintains its purchasing power and can grow into a much larger amount. But the value of equities can go up and down in the short-term in line with the market. You can reduce this and enjoy a smoother investment ride to retirement by investing in a smooth bonus fund.

These are benefits which employers offer their employees over and above their salary and other perks. Traditionally, employee benefits include a pension fund, provident fund, or both, to help you save for retirement, and/or group insurance benefits that cover you as an employee in the event of death, disability, or severe illness. More recently, employers have started realising the importance of including employee assistance programmes in their employee benefits offering, to help employees achieve wellness by addressing stressors in all the aspects of their lives, including financial, mental health, emotional, and physical.

Like a bank account, certain fees are deducted from your retirement savings and paid to the experts that manage your money and make it grow. Fees generally include an advisory fee paid to your employer’s group financial adviser who helps your employer to design and deliver employee benefits that meet your needs and the needs of your colleagues. You will also pay a fee to asset managers for investing your money wisely and helping it to grow, and an administration fee to the retirement fund administrator who delivers various services, such as paying benefits. There are also fund expenses that are paid.

These fees vary but they’re generally a small percentage of your savings. However, over time they can impact on the growth of your money. Fortunately, the retirement benefits you have through you employer are provided on a large-scale basis, meaning these benefits provide for large numbers of employees rather than one individual. This allows you to benefit from economies of scale, which means you pay less in fees than if it was only your individual savings.

This is a professional who can assist you with your financial decisions and planning. They usually receive an advisory fee for their services. In these unpredictable times, it is simply not possible to manage your financial success on your own. Your financial adviser will help you develop a financial plan to navigate the financial challenges you may face.

It’s important to use a qualified, registered, trustworthy financial adviser. Contact the Financial Services Conduct Authority (FSCA) to find out if your financial adviser is registered and authorised to give advice on specific products.

Your company is also likely to employ the services of a group financial adviser, who can provide advice about what benefits to offer employees. Many of these companies also offer individual personal financial services, which you can tap into.

The Financial Services Conduct Authority is the market conduct regulator for all financial institutions, which includes banks, insurers, retirement funds and their administrators. This means they are there to make sure these companies and their agents act according to the law and treat their customers and members fairly.

Fund expenses are charged over and above the administration fees to cover the following expenses relating to the governance of the retirement fund:

• The cost to valuate and audit the Fund,
• The remuneration of the independent trustees and the principal officer,
• The costs of the insurance to cover the Fund if it is sued because there was fraud or dishonesty or a mistake made by the trustees or other officials of the Fund,
• Levies and fees paid to the FSCA,
• Other expenses approved by the trustees.

This is an insurance policy which you can take out to pay an amount of money if there is a death in your family to cover the cost of the funeral. If you have insurance benefits through your employer, these may include a funeral policy, which can also simply be called a funeral benefit. If you aren’t sure, check with your employer if you have a funeral benefit and who in your family is covered. Funeral policies or funeral benefits pay out a lump sum to help pay for urgent expenses if you or a member of your family passes away. It gives you and your family basic insurance cover to help financial burden during a difficult time. As with all insurance policies, funeral policies have payout limits, so make sure you know what they are on your policy.

The free cover limit is the maximum amount of insurance cover an insurer gives to a member of a group insurance arrangement without the member having to provide medical evidence of health. Most members have insurance cover that falls below the free cover limit, which means they don’t need to go through the underwriting process.

However group insurance cover is often linked to income. If a high income or salary increase pushes your cover over the free cover limit, you will need to be underwritten. Otherwise your benefit will be capped at the free cover limit, and you will lose out on the additional potential cover.

When you belong to a retirement fund through your employer, where you pay a monthly contribution from your salary and your employer also pays a monthly contribution, the gross contributions are your and your employer’s contributions added together, before fees and costs are deducted, which include administration fees, fund expenses, and consulting fees.

If your employer offers certain employee benefits as part of your employment contract, these benefits may include group insurance. Unlike individual insurance, where you are the policyholder, your employer is the policyholder of a group insurance policy. Group insurance is a way your employer can help you as an employee and your beneficiaries lessen the financial impact of unexpected events such as critical illness, disability, or death, which could leave you without an income if you don’t have any other insurance.

Having insurance protects you from financial loss when certain events happen. A company that provides insurance is known as an insurer, an insurance company, or an underwriter. When you take out an insurance policy, you pay premiums that buy you insurance cover for specified events. By receiving your premiums, your insurance company agrees to pay for your financial loss if the specified event happens. You can take out insurance in your own name where you are the policyholder, or you can have insurance cover through a group insurance policy taken out by your employer for you as an employee.

The costs of your insurance benefits provided by the fund or provided by the participating employer, for example your group life and disability cover.

If you are part of your employer’s group insurance scheme, your insurance salary (sometimes also called a ‘risk benefit salary’) is the portion of your salary your employer uses to calculate your insurance benefits each month. If you are a member of a group insurance scheme, your insurance salary, of your total cost-to-company salary

One way that banks or money-lending companies make money is by charging extra (interest) on money they lend to clients. You pay this interest when you pay them back. They charge interest at specified rates, so it’s worth shopping around for lower interest rates when you need to borrow money.

Extra money you earn for saving your money with a bank or an investment/savings organisation, or your retirement fund. Banks pay you interest on your savings at specified rates, so it’s worth comparing these rates to see where you can get the highest rate when you decide where to save your money.

Your retirement fund invests your contributions, after deductions, in investment portfolios to make your money grow. Investment earnings mean the amount by which your retirement savings account has increased. However, during times of uncertainty and market volatility, your savings account can also experience negative earnings, meaning your money has decreased.

Retirement fund savings are long-term and invest heavily in equities that deliver high growth, inflation-beating returns over time. So over time, the return you should receive from your retirement savings account should be quite a bit higher than your savings account with the bank or other shorter-term savings, even though the value of your retirement savings may move up and down over time.

An investment portfolio is a basket of mixed assets made of equities, property, bonds, cash and other specialised asset classes.

When money is paid out in a lump sum, it means it is paid at once and not in separate payments or stages.

When markets rise, market returns are likely to be higher than bonuses declared. In a declining market, the bonuses declared are expected to be higher than the corresponding market returns. This is ‘smoothing’ in action. Due to these market movements, your book values and market values tend to differ from each other.

Your investment’s book value consists of:

• The amount you initially invested and any additional contributions; less
• Payments requested (if you withdrew any of the money invested); less
• Policy fees (the fees paid to the people who manage your money); plus
• Declared bonuses (which represent the growth of your investment).

Your investment’s market value consists of:

• The amount you initially invested and any additional contributions; less
• Payments made, policy fees, asset management fees, performance fees, capital charges and transaction costs; plus
• Market returns (positive or negative).

When your market value is lower than your book value, the difference between the two values is known as a market value adjustment (MVA), which does not include any fees or costs.

A market value adjustment’s purpose is to protect the interests of all remaining members in a smoothed bonus portfolio by ensuring there are sufficient remaining underlying assets (which have a market value) if other members leave the portfolio.

If you become disabled and cannot work, you will be paid this monthly income for as long as you are unable to work, up to your normal retirement date. Your claim will be assessed according to the conditions of your employer's group insurance policy.

This is the age specified by your employer in your employment contract when you are set to retire.

Current legislation allows retirement funds to offer housing loan guarantees. If you are struggling to get the loan you need to buy a residential property or land because you don’t have the cash deposit needed, you can access a portion of your retirement savings as security for the loan. Not all retirement funds offer this benefit so check if your retirement fund does. You can also use this benefit to get a loan to do home improvements or pay for transfer costs.

Advantages of pension-backed home loans usually include no bond registration costs and low initiation and monthly fees. Plus instalments are deducted directly from your salary which means no debit order fees. Also, the retirement fund negotiates favourable interest rates with the banks.

Of course to qualify for a pension-backed home loan, you will go through a similar approval process as with a bank. You must be able to afford the monthly repayments, may not have any garnishee or administration orders against you, may not be under debt review or sequestration, and have an acceptable credit score.

Your pensionable salary is different to your cost to company salary (your gross salary before deductions). Pensionable salary is a percentage of your cost to company salary. For example, your pensionable salary may be 80% of your cost to company salary.

Your retirement fund contributions are based on your pensionable salary, not your cost to company salary. So, you may be saving less for retirement than you think. Ideally you want to choose a pensionable salary that is 100%, or close to 100%, of your cost to company salary.

Remember: retirement fund contributions are tax deductible, which means you don’t pay tax on them. So the higher your contributions, the lower your tax and the more going to retirement.

A maximum of 27.5% of your gross salary, or R350 000 a year, can be deducted from your gross (cost-to-company) salary for your total retirement contributions to any pension and/or provident and/or retirement annuity fund. After you reach these limits, your deductions are no longer tax deductible.

There are different ways to save for retirement. One of these is to belong to your employer’s pension fund. This means you contribute a portion of your monthly salary to retirement savings. Your employer may also contribute as part of the benefits they offer employees.

Both your contribution and your employers are tax deductible which means they are deducted before your tax is calculated. This is great as you save on tax and more money goes to investing for the future.

When you retire from the pension fund, you can take up to a third of your savings as a cash lump sum. This money is taxable. The rest must be used to buy an annuity. Your annuity income is taxable. If your total retirement savings are less than R247 500, you can take the full amount as a cash lump sum.

The Pension Funds Act 24 of 1956 governs the management of your retirement fund. More specifically, it provides for the registration, incorporation, regulation and dissolution of pension funds, or any matters related to these events.

This is a type of retirement fund specifically designed to receive lump sum benefits from a pension or provident fund if you resign from your current employer before retirement. Keeping your savings invested rather than cashing it in is a smart financial move as

your money continues to grow, uninterrupted. If you need your preservation fund money, you can withdraw all or a part of it from the fund before you reach 55. You are only allowed one withdrawal before retirement.

According to the Pension Funds Act, each retirement fund needs a Principal Officer. This is the person who is responsible for making sure the retirement fund is managed in terms of the Pension Funds Act.

A provident fund is the same as a pension fund although, before 1 March 2021, there were differences when you resigned or retired. Unlike a pension fund which requires you to use at least two-thirds of your retirement savings to buy an annuity, before this date you could take all your savings in your provident fund in cash, which you would be taxed on. Changes to legislation introduced from 1 March 2021 now require provident fund members to take up to a third of their benefits as a lump sum and use the rest to buy an annuity.

The following applies to your provident fund benefit after 1 March 2021.

• Like a pension fund, if your total savings are less than R247 500, you can still take the full amount as a lump sum.
• The requirement to buy an annuity only applies to amounts contributed (and growth on these contributions) AFTER 1 March 2021, provided you stay on the same provident fund until retirement.
• If you were 55 years or older on 1 March 2021, you will be able take your total retirement savings plus any contributions you make after this date and growth on these contributions, as a cash lump sum. This applies provided you stay on the same provident fund until retirement.

This regulation is part of the Pensions Fund Act. It exists to make sure your retirement fund invests your money wisely. It achieves this by setting out maximum limits for the amount of money your retirement fund can invest in certain asset classes. This helps to ensure diversification, spreading your savings across a mix of appropriate asset classes so you “don’t have all your eggs (savings) in one basket.”

There is a concern that the current limits in Regulation 28 limit the amount retirement funds can invest in infrastructure, like big long-term investment projects to improve electricity and water supply, or transport systems. This is why National Treasury has proposed changes to Regulation 28 to make it easier for retirement funds to invest in these projects. The trustees that manage your retirement fund may consider greater investment in these projects but will always strive to make investment decisions that are in your and your fellow members’ best interests.

Like a pension fund, you make monthly contributions to a retirement annuity (RA), usually through a debit order. The big difference is that an RA is not through your employer, and you choose where to invest within the limits set out by the retirement regulations. If you change jobs, your RA is not impacted as it’s separate from your employer.

Like a pension fund, you can take up to one third of your RA savings as a cash lump sum but need to use the rest to buy an annuity.

Think of your retirement savings account (RSA) as a bank account that sits in your retirement fund and contains all your retirement savings. Retirement savings are long-term investments, so the interest and returns you earn on your retirement savings sitting in your RSA should be a lot higher than the interest returns you would earn on a normal bank account and should be inflation-beating over the long-term.

Like a bank account, certain fees are deducted and paid to the experts that manage your money and make it grow.

Return on investment, or ROI, measures how your investment is performing. ROI is shown as a percentage, which reflects a gain or loss in your money’s value.

Risk is the uncertainty an investment won’t deliver the expected return. Lower risk investments usually behave as expected but all investments carry some risk.

Higher risk investments deliver higher returns over the long-term and lower risk investments are likely to deliver lower returns over the long-term.

When you’re far from retirement, a higher risk, higher return investment makes sense. Over time, this should provide the high, inflation-beating returns you need. If you are close to retirement, a lower risk, lower return option is wiser.

Your retirement fund is managed according to its own set of rules, which have to be in line with the law.

If you belong to a multi-employer umbrella fund, you’ll find it has two kinds of rules: General Rules and Special Rules. The General Rules apply to all the employers who join the fund; while the Special Rules are drafted for each participating employer and contain their specific information. If there is ever any conflict between the two sets of rules, the General Rules will apply.

The rules are only effective once the Financial Sector Conduct Authority (FSCA), the regulatory body responsibility for conduct regulation and supervision in the financial services sector, has approved and registered them.

If you are investing for retirement, you need investment portfolios that target high returns of 4% a year above inflation over the long-term. The problem is that the returns of these portfolios are more volatile, which means they move up and down in value in line with the market. This means the value of your retirement savings also moves up and down.

Smoothing involves keeping some of the market returns achieved in times of good market performance and using it to boost returns in times of poor performance. This offers a far smoother ride to retirement as you don’t experience the same extent of market ups and downs as you would if invested in a portfolio without smoothing.

A standalone retirement fund is a retirement fund that only the employees of a particular organisation or employer can join. This kind of retirement fund may be suitable for very big companies or organisations that have economies of scale thanks to their size. Standalone funds differ from umbrella funds, which are large retirement funds many employers belong to.

Like an umbrella fund, a stand-alone retirement fund can be a pension or provident fund

Unlike stand-alone retirement funds which cater for the needs of a particular organisation or employer, umbrella funds look after the needs of many different employers and their employees. The size of these funds often makes them more cost-efficient than stand-alone funds.

These cost efficiencies from economies of scale mean more money is channelled to retirement savings, which means members can save more for retirement. Although the saving can be quite small in present time, the value of this saving grows into a much larger amount over the long-term investment period, thanks to compound interest.

The leading umbrella funds also have the scale to invest in digital platforms. This allows them to give members the information they need at key financial decision-points and leads to better informed decisions. They may also offer attractive value-add benefits that help to address members’ needs in the here and now. These include pension-backed home-loans, psychological counselling, financial coaching and debt management, and rewards programmes, to name but a few.

When you take out insurance as an individual, insurers apply a process called underwriting to collect the information they need to calculate the level of risk they will be taking on. This process involves gathering information on your health and lifestyle, and then deciding whether they will cover you and what premium they will charge to provide the cover.

However, the approach for the group insurance benefits you have through your employer is different. Most employees joining a group arrangement do not need underwriting at an individual level. However if you are a high-income earner, your insurance cover may be higher than the free cover limit, also known as the automatic acceptance limit, and you will need to be underwritten to receive the full benefits.

Being a member of a group retirement scheme as part of the employee benefits your employer provides is a great way to save for retirement. Before your money is invested, there are certain deductions made for costs involved with retirement funds, one of these is for administration fees. Administration fees cover:

• collecting, allocating and investing your monthly contributions, as well as your employer’s monthly contribution,
• managing the benefit and product options available to you in your retirement fund,
• investment management fees if your retirement savings are invested in external investment portfolios not provided by the insurer managing your retirement fund,
• administering additional benefits, like retirement-fund-backed housing loan guarantees or other value-added benefits,
• the costs of managing separately insured benefits provided by your retirement fund.

Umbrella funds are managed by a central board of trustees, representing the best interests of all the employees whose employers participate in the umbrella fund. Because of this, there is no need for each participating employer to have its board of trustees, but there is still a need to have a group that makes sure that the needs and interests of their employees are addressed. Therefore, the General Rules of most umbrella funds allow every participating employer to appoint a management committee called an advisory body.

Usually members of the advisory body include employee rep employer representatives and may also include the financial adviser of the employer’s group scheme.

Your death benefits are either approved or unapproved. Or part of your benefit may be approved and part of it may be unapproved.

Approved benefits are where the death benefit is provided through your retirement fund and the trustees decide who it is paid to, and how much each dependant and beneficiary receives.

Unapproved benefits are provided through a policy in your employer’s name. Your unapproved death benefit will be paid to the beneficiaries who you have nominated.

Don’t worry about the term ‘unapproved’. It just means the benefits are not provided through a tax-approved retirement fund.

The two benefits are also taxed differently. The premiums paid to an approved fund are tax-free up to a certain level. But the lump sum is taxed when paid.

You pay tax on the premiums for unapproved benefits but your beneficiaries don’t pay tax on the lump sum when it is paid.

Whether it is an approved or unapproved benefit, it is still very important to complete a beneficiary nomination form, supplied by your retirement fund or employer, to share your wishes of who should receive the benefit if you pass away. Recent legislative changes make this particularly important for unapproved benefits, as the benefit will be paid into your estate if you haven’t nominated beneficiaries.

This means the benefit will reduce due to the expenses involved in finalising your estate. More importantly, your loved ones will not have much-needed finance when they really need it as an estate usually takes a long time to wind up.

An annuity is a monthly income for retirement. When a pension or provident fund member reaches retirement, the law says they need to use at least two-thirds of their retirement savings to buy an annuity. There are different types of annuities. The two main types are life annuities, which include with-profit annuities, and living annuities. It’s important to understand the differences between these annuities and make the choice that is best for you.

Like most people, you will need an income when you retire and no longer earn a full-time salary. Buying an annuity from an insurer, using a portion or all of the retirement savings you built up while you were working, can give you such an income. There are different types of annuities that you can choose, depending on your needs.

• A guaranteed life annuity pays you a guaranteed income for life. The insurer guarantees that the income you receive will never reduce for as long as you live, so you can’t outlive your income. You determine your annual increases upfront – you can choose no increase, a fixed percentage (for example, 5%), or an inflation-linked increase (based on the consumer price index figures.
  
  You can choose to have your income paid for a minimum term (also called a guaranteed period). If you pass away before the end of the guaranteed period, your income will be paid out to your beneficiaries or estate.


• A living annuity is a market-linked investment that gives you a regular retirement income while at the same time aiming to grow your retirement savings. You invest your retirement savings with an insurer and you carry the investment risk of how the portfolios perform. You choose where you want your money to be invested and you
  
  choose the monthly income amount you want to receive once a year, within certain regulatory limits.
  
  There are no guarantees with living annuities, so you need to be careful not to draw an income that is higher over time than your portfolio’s investment growth, as your savings could then run out while you are still alive.


• A with-profit annuity, like a guaranteed life annuity, also pays you a guaranteed income for life. The insurer guarantees that the income you receive will never reduce for as long as you live, so you can’t outlive your income. But, with-profit annuities differ in that increases are declared once a year by the life insurer.

You can choose to have your income paid for a minimum term (also called a guaranteed period). If you pass away before the end of the guaranteed period, your income will be paid out to your beneficiaries or estate.

An asset class is a group of investments that have similar characteristics and are subject to the same laws. The main asset classes for retirement savings are equities, bonds, and cash.

As your life changes, so do the people who are important in your life, as well as your personal and contact details. That’s why it’s important that you update your and your dependants’ and beneficiaries’ details regularly.

Beneficiaries are the people you nominate to receive your death benefit after you’re gone.

If you have an approved death benefit, the trustees of your retirement fund will first make sure that your dependants are financially taken care off through your death benefit, and then divide any leftover money between the beneficiaries you have nominated who are not necessarily dependants.

If you have an unapproved death benefit and have not nominated beneficiaries, the benefit will be paid into your estate.

These benefits are not covered by your will so it’s essential that your retirement fund knows who your dependants and beneficiaries are. Otherwise, the benefit will reduce due to the expenses involved in finalising your estate. More importantly, your loved ones will not have much-needed finance when they really need it as an estate usually takes a long time to wind up

Like your day-to-day bank statement, your benefit statement gives you information about all the benefits you have through your employer. It is a treasure trove of information that can, if well-understood, help with your financial planning.

Your benefit statement shares information on important benefits your employer provides, like retirement benefits and group insurance benefits like death, disability, critical illness and funeral benefits. If you are fortunate to belong to one of the top umbrella funds, you will also get information on value-added benefits available through the umbrella fund.

Benefit statements are available as printed or pdf statements, but nowadays the top umbrella funds offer a digital benefit statement which offers real time information on your benefits which you can get through your PC or mobile phone.

Go through your benefit statement with a fine-tooth comb, like you are reading your child’s report. You may discover benefits you never knew you had, and it will really help when you plan your finances.

Links to Pension Funds Act, trustee, default investment management portfolio.

The board of trustees are the people who manage your retirement fund. The Pension Funds Act says every retirement fund must have a board of trustees.

Each trustee has a legal responsibility to always consider the best interests of you and your fellow members in every decision they make. Important decisions vary from choosing the default investment management portfolio to making sure the fund remains financially sound to determining how death benefits should be paid.

Bonds are an important asset class for retirement fund investors. With a bond, you’re like a bank. You lend your savings to a borrower, like the government or a company, who promises to pay you the money back in full with regular interest payments on specified dates. These regular payments are your return on investment (ROI) which grow your retirement savings