- Saving for retirement
- Retirement annuities
- Alternative solutions
- Pension, provident & preservation funds
- Your risk profile
The best time is now
The best time to have started saving for retirement was the day you started working. The next best time to start saving is today! To achieve peace of mind at retirement, knowing you are well positioned financially to maintain your desired lifestyle, we need to lay the foundations as soon as possible. By utilising your greatest asset – “time” – we are one step closer to fulfilling your hopes and dreams at retirement.
There are various solutions available to you and your current situation which may benefit your retirement planning, all with their own unique characteristics. Each of these should be considered holistically.
The benefits of a retirement annuity
There are many ways to save for retirement, but the most disciplined way is to utilise a retirement annuity (RA). RAs are a tax-efficient way to save because the contributions are tax deductible. You also earn compound interest on your savings until your desired retirement age (the minimum retirement age is 55 for RAs).
Tax benefit: the cumulative contributions to all retirement funds are tax deductible up to the greater of 27.5% of your taxable income or remuneration, limited to R350,000 per year
Access on retirement: one-third of the fund can be taken as a lump sum in cash and two-thirds must be used to purchase an income (in the form of an annuity). Alternatively, the funds can be accessed should you pass on or become disabled, dependent on the rules of the relevant fund.
Tax on proceeds: the lump sum is taxed according to the retirement tax table whilst the income purchased from the annuity will be taxed according to the income tax table
Pension and provident funds
Without proper planning for your retirement, there is a risk of outliving your savings. Pension and provident funds are types of retirement plans offered by employers to help their employees save for their retirement. The fund values and contributions should be included in your overall retirement plan. Upon resignation from your job, the value of the fund can be preserved to support your retirement goals.
Why your risk profile matters
A risk profile is an analysis of your tolerance towards risk. The analysis considers your ability to take on risk as well as your general attitude towards investing. A series of questions are asked to determine what your risk profile is. This is done to select funds suitable for your saving needs. An SFP advisor can guide you on your journey to saving for retirement by helping you to first determine your risk profile.
How the two-pot system works
The two-pot retirement system restructures how retirement fund contributions are managed by dividing them into two components: a savings pot and a retirement pot.
The savings pot allows limited annual withdrawals, but these are taxed at the individual’s marginal tax rate and should only be accessed in true emergencies
The retirement pot, which receives two-thirds of all new contributions, is strictly preserved until retirement, helping ensure long-term financial security
Financial advisors play a critical role in helping clients navigate the two-pot system. They must guide clients away from premature withdrawals that could compromise long-term goals; regularly assess retirement needs and plans; reinforce that the savings pot is not a tax-free benefit; and promote disciplined saving habits and proper emergency planning.
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