When it comes to ensuring a secure and comfortable retirement, your number one asset is probably your retirement fund. But many people simply sign up for their employer’s retirement fund when they start a job, and don’t make the effort to understand why it’s important, and to ask the right questions to make the most of this key asset.
We asked Craigh Chidrawi, Head of Retirement at employee benefits advisory firm NMG Benefits for the questions every new employee should be asking, to make the most of their employer retirement fund.
Every member of a retirement fund is entitled to information about the fund. The member booklet sets out how the fund works and the benefits you get when you retire or change jobs, and what your family will get if you die. It also contains information about the fund’s investments, and the costs of the investment portfolios.
By the time you retire, you should have saved enough to receive an income that can cover your ongoing living expenses. Check if the contribution to your new retirement fund is enough to ensure you will have enough income in retirement. An online calculator can show you what income you can expect and whether you will need to make other arrangements to save more for retirement.
Putting extra money into your retirement fund will improve your expected retirement income. By using your annual tax-deductible contribution limit to make tax-efficient additional voluntary contributions to your fund, your contributions have time to earn compound interest to help you get a higher monthly income when you retire. You will also pay less tax on your salary or income every month.
The sooner you start saving for retirement, the less you will need to save each month to reach your savings goal. And the longer you have until you reach retirement age, the more you will be able to save without having to use your retirement savings to generate an income.
It’s a good idea to understand your retirement fund’s investment strategy and to know where your retirement benefit is being invested. Your contributions will typically be invested in the market – usually mostly shares and property - to give you the best possible long-term growth. There are many factors that affect the growth and value of your investments, but it is critical to maintain a long-term view when thinking of your retirement savings goals.
Find out if you have group life insurance and how it’s been structured. If the cover is through the retirement fund, it will be taxed differently to if it is taken out by your employer, and the way it is paid out will also be different. It’s important to know the amount of cover you are entitled to. Will this be enough to settle your debts and provide your dependants with enough income if you die? You may need more insurance cover in your own name if the cover through your retirement fund or employer doesn’t meet all your needs.
If you die, the trustees of the retirement fund will have to find out who your dependants are and then decide how to pay the benefit fairly. The time taken to pay the death benefit can be shortened if there is an up-to-date Dependants and Nominees form that lists your legal dependants and people who are financially dependent on you on the form. If your group life insurance is through your employer, the form will ensure that benefits are paid in line with your wishes.
You’re allowed to transfer your retirement savings from your previous employer’s retirement fund into your new employer’s fund. You can also transfer any paid-up money from other retirement funds into your new employer’s fund. This is an easy and cost-effective way of keeping your retirement savings invested for your retirement.
The NMG SA Group of Companies are authorised financial service providers t/a NMG Benefits
