Two-Pot or Not Two-Pot

As life expectancy rises and the quality of life improves, South Africans face the pressing need to ensure financial security post-retirement. The Two-Pot System is designed to improve retirement outcomes by ensuring long-term savings are preserved while providing access to funds for short-term needs.

The Reality of Retirement Readiness
As we now live longer, it’s essential for employees to plan as if they’re going to live to 100. Insights gathered from our extensive experience in the industry indicate that maintaining your lifestyle after retirement requires significant financial preparation. Experts suggest having at least 15 times your annual salary as a safe cushion to ensure a comfortable retirement. Even among those who have formally planned for retirement, there is a prevailing lack of confidence in their ability to support themselves long-term, particularly in light of inflationary pressures and the current economic climate.

Overcoming the Temptation to Withdraw
As part of the Two-Pot System, members will be able to withdraw cash from their savings pot once every tax year (called a Savings Withdrawal Benefit). And while having access to a portion of retirement savings is helpful in emergencies, it’s important that employees aren’t tempted to treat their retirement funds as a transactional account. But even if they do, NMG Benefits believes the new system could still benefit members in the long run as it will prevent them from having to take out expensive short-term loans. And, at the same time, being forced to preserve two-thirds of their funds over the long-term (and not cashing in when they change employers) will improve retirement outcomes. This approach encourages better financial planning and promotes long-term financial stability.

Empowering Members with Knowledge
This is the biggest change that the industry has seen in decades, so NMG Benefits believes that the Two-Pot System requires proactive member education and personalised guidance. Especially because fund members will be in the driving seat for all Savings Withdrawal Benefit decisions, as well as the movement of funds between pots. Therefore, members need to understand the core changes to the system, a simple way to interact with their pots to see how much money is in there, and the ability to make an informed decision about what to do with it. They also need to be guided through the withdrawal process so they know whether they qualify for the withdrawal and what to expect next.

Before making the decision to withdraw, it's crucial for members to be well-informed or consult with an expert who specialises in retirement planning. This ensures that they will have the correct amount of money saved when they retire and that their resources will be handled in a safe and predictable way.

Innovating Financial Education with SmartAlec
NMG Benefits has been using WhatsApp to educate members about financial literacy for the last 3 years. Our financial education chatbot, called NMG SmartAlec, helps members understand over 100 important financial concepts that are needed to make informed financial decisions. It is available in 4 South African languages, and uses a wide range of local stories and gamification techniques to drive engagement and progress through the content. Our clients appreciate the measurability of impact, and the ability to empower staff working in remote locations as the digital learning experience only requires a small amount of data and a WhatsApp application.

Our Two-Pot Innovations Put Members in the Driver Seat
Using our experience with SmartAlec over the past 3 years, we have built a personalised, guided experience over WhatsApp to support members with their Savings Withdrawal Benefit decision and enable them to initiate the transaction digitally and in real-time.

It includes multi-factor ID verification, structured education using bite-size explanations and examples, the ability to see their pot balances, an opportunity to check whether they would qualify for the withdrawal given all the rules and deductions, as well as a guided withdrawal experience where their expectations are managed regarding timelines, fees, taxes, and long-term implications.

Better Outcomes for All
Our goal is to empower members and increase their satisfaction while relieving the burden on HR personnel and administrators who will be managing an influx of queries, confusion, concerns, and complaints. By providing a streamlined and user-friendly channel, HR and administrators can focus on more strategic tasks, knowing that members have the tools and knowledge they need to make informed decisions about their retirement savings.

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

Why you need to plan for a longer retirement

As life expectancy rises and quality of life improves, South Africans are facing the pressing need to ensure financial security post-retirement. Insights gathered from our extensive experience in the industry indicate that maintaining your lifestyle after retirement requires significant financial preparation. Experts suggest having at least 15 times your annual salary as a safe cushion to ensure a comfortable retirement.

However, our observations show that the majority of South Africans have not formally planned for retirement. Even among those who have, there is a prevailing lack of confidence in their ability to support themselves long-term, particularly in light of inflationary pressures and the current economic climate.

Janice Masencamp, Head of Retirement Fund Consulting at NMG Benefits, says that while there’s no mandatory retirement age in South Africa, retirement age is often written into employment contracts, and employees need permission from their employers to keep working beyond that age to be able to sustain their lives and those of their dependents.

“By working for only four extra years, post-retirement income can increase by about 10%. By working for an additional 10 years, this income can almost double,” says Masencamp.

Studies suggest people who work longer retain higher levels of energy and mental awareness and retain a continued sense of purpose and belonging. However, for most ‘unretirees’, the biggest advantage of staying in the workforce is the ability to generate additional income and having more years to save towards retirement.

Now, that we live for longer, we’re getting to a point where we should start planning as if we’re going to live to 100. This will impact the way we do financial planning. And those who don’t have enough retirement savings will keep working until they’re no longer able to,” says Masencamp. South Africans need to start actively planning for retirement as early as possible. This includes speaking to a financial planner, to help navigate the numerous options for investing your retirement income based on your personal needs, especially with the implementation of the two-pot system. “A planner will help you understand your various options and alternatives when it comes to deciding to withdraw or not, and what the ramifications of those decisions will be.”

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

Key indices to 31 December 2023

Key Indices	1 month to 31 Dec 2023	3 months to 31 Dec 2023	1 years to 31 Dec 2023	3 years to 31 Dec 2023	5 years to 31 Dec 2023
Local shares FTSE/JSE All Share TR ZAR	2.0%	6.9%	9.3%	13.5%	11.9%
Local resource shares FTSE/JSE Resources 10 TR ZAR	-1.3%	0.0%	-15.4%	6.0%	12.5%
Local industrial shares FTSE/JSE Industrials l 25 TR ZAR	0.5%	5.9%	17.3%	12.2%	12.3%
Local financial shares FTSE/JSE Financial 15 TR ZAR	5.5%	12.3%	21.8%	19.6%	6.8%
Local property FTSE/JSE SA Listed Property TR ZAR	9.9%	16.4%	10.1%	14.9%	0.2%
Local bonds Beassa ALBI TR ZAR	1.5%	8.1%	9.7%	7.4%	8.2%
Local cash STeFI Composite ZAR	0.7%	2.1%	8.1%	5.7%	5.9%
Global shares MSCI ACWI GR USD	1.2%	7.9%	32.0%	14.3%	17.8%

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

What you need to know about the new retirement savings rules

It’s likely that you have heard of the two-pot system that will be changing the way retirement funds work. If you are a member of a pension or provident fund, a retirement annuity fund or have money in a preservation fund, the new rules will apply to you. It’s a good idea to take note of the changes, as they are significantly different from the current regime!

Why are these changes happening?

The aim with the new system is to give South Africans more control over their savings in times of financial hardship, while still allowing your money to be preserved for your retirement.

What are these two pots?

Any new retirement contributions made after 1 September 2024 will be allocated into two pots – one for “savings” and one for “retirement”.

One third of your contributions will be allocated to the savings pot and you’ll be able to access this money in an emergency. Until now, you haven’t been able to take any money from your pension or provident fund while you are working for your current employer or from your RA before age 55.

The remaining two-thirds of your contribution will be allocated to the retirement pot must be used to buy a pension when you retire.

What happens on 1 September 2024?

There will be a once-off transfer of 10% of your existing retirement savings in a pension, provident, RA or preservation fund to your savings pot as a starting value. This is capped at R30 000. After 1 September 2024, new contributions are split 1/3 and 2/3 into the savings and retirement pots.

How do you access the savings pot?

You can withdraw from your savings pot once per tax year. The tax year runs from 1 March to 28 February each year. You must withdraw a minimum of R2 000. The maximum amount you can withdraw will be the balance available in the pot.

Amounts that you withdraw are taxed at your marginal income tax rate. Its likely that the fund administrator will deduct a fee for the withdrawal.

‍It’s recommended that you only use the money in your savings pot when there is an emergency.

What happens if you leave your employer?

Obtaining a cash benefit from your retirement fund is no longer linked to leaving your employer. After 1 September 2024, if you leave your employer because you resigned, are retrenched, or dismissed, you will only be able to take a cash benefit if there is a benefit in your savings pot. If you have already been paid that benefit, the benefit in your retirement pot will not be paid to you. The new system helps you preserve 2/3’s of your retirement money until you retire.

What happens to your savings pot when you retire?

When you retire, the benefit in your retirement pot must be used to buy a pension that will provide you with a monthly income. If you have a benefit in your savings pot, you can either take this in cash or use it to buy a pension.

The new system balances the need for accessing cash when there is a need while encouraging us to have savings available when we reach retirement age.

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

Key indices to 30 September 2023

KEY INDICES	1 month to 30 Sept 2023	3 months to 30 Sept 2023	1 years to 30 Sept 2023	3 years to 30 Sept 2023	1 years to 30 Sept 2023
Local shares FTSE/JSE All Share TR ZAR	-2.5%	-3.5%	17.7%	14.5%	9.3%
Local resource shares FTSE/JSE Resources 10 TR ZAR	1.0%	-5.4%	-0.5%	8.7%	11.4%
Local industrial shares FTSE/JSE Industrials l 25 TR ZAR	-4.4%	-6.8%	29.5%	12.5%	9.5%
Local financial shares FTSE/JSE Financial 15 TR ZAR	-3.8%	2.0%	23.6%	22.3%	4.2%
Local property FTSE/JSE SA Listed Property TR ZAR	-3.8%	-0.6%	13.1%	16.5%	-6.1%
Local bonds Beassa ALBI TR ZAR	-2.3%	-0.3%	7.2%	7.0%	7.2%
Local cash STeFI Composite ZAR	0.7%	2.1%	7.5%	5.3%	5.9%
Global shares MSCI ACWI GR USD	-4.6%	-3.6%	27.3%	11.9%	13.3%

Key indices to 30 June 2023

Key indices	1 month to 30 June 2023	3 months to 31 June 2023	1 years to 31 June 2023	3 years to 31 June 2023	5 years to 31 June 2023
Local shares FTSE/JSE All Share TR ZAR	1.4%	0.7%	19.6%	16.1%	9.6%
Local resource shares FTSE/JSE Resources 10 TR ZAR	-8.2%	-6.4%	2.9%	12.8%	13.7%
Local industrial shares FTSE/JSE Industrials l 25 TR ZAR	3.7%	3.7%	36.8%	14.1%	9.1%
Local financial shares FTSE/JSE Financial 15 TR ZAR	11.4%	6.0%	15.6%	21.7%	4.7%
Local property FTSE/JSE SA Listed Property TR ZAR	0.9%	0.7%	10.0%	11.3%	-3.5%
Local bonds Beassa ALBI TR ZAR	4.6%	-1.5%	8.2%	7.6%	7.4%
Local cash STeFI Composite ZAR	0.6%	1.9%	6.8%	5.0%	5.8%
Global shares MSCI ACWI GR USD	0.9%	13.2%	35.1%	14.7%	15.8%

NMG Umbrella SmartFund – Annuity strategy update

Background

The “Default Regulations” for retirement funds came into effect on 1 March 2019. The aim was to help members make informed decisions about their savings, bring down costs and ensure clear and meaningful communication.

From this date, funds were required to put an annuity strategy in place for retiring members who either don’t want to choose their own annuity or don’t have access to a financial advisor. Members can choose to have their retirement savings paid into the fund’s approved annuity strategy. The rules of the NMG Umbrella SmartFund do not provide for annuities to be provided by the fund; annuities must be purchased from licensed annuity providers.

Previously, the NMG Umbrella SmartFund’s annuity strategy provided different options depending on the value of the member’s fund credit at retirement.

If the non-vested benefit was R247 500 or less, the member could choose to take the benefit in cash.
If the retirement benefit was between R247 500 and R500 000, the annuity option was a with-profit life annuity paid for the rest of the member’s life.
For retirement benefits more than R500 000, the annuity option was a hybrid annuity that used a combination of a living annuity and with-profit life annuity. The annuity started off as a living annuity and then converted to a life annuity over the next 10 years in fixed increments.

Review of the annuity strategy

During 2023, the board reviewed the fund’s annuity strategy, considering the nature of the fund, and that members have a wide range of needs and profiles. The annuity strategy was revised, and the current strategy no longer differentiates the annuity offering according to the size of the member’s benefit. Instead, the annuity strategy offers members three types of annuity arrangements, allowing members to select the offering most suited to their needs. The three options are the following:

1. NMG Smart Living Annuity

A living annuity allows the retiree to select an income level between 2,5% and 17,5% of the investment value. The chosen income level can be changed once a year as the retiree’s needs change. There is no Capital Gains Tax, no Tax on Interest, and no Dividends Withholding Tax on the investment growth although the income is taxed. The benefit is distributed to the nominated beneficiaries in the event of the retiree’s death. It is also protected from creditors.

In the NMG Smart Living Annuity, provided by 27four Life, there is a choice of four investment portfolios:

NMG SmartActive Aggressive
NMG SmartActive Moderate
NMG SmartActive Conservative
NMG SmartActive Preserver

The fees that apply are:

Platform fee	Investment fee
0.25% p.a. for assets between R0 to R1m, 0.20% p.a. for assets between R1 to R3m, 0.12% p.a. for assets between R3 to R10m, 0.08% p.a. for assets more than R10m.	The fee for the selected SmartAssets portfolio will apply. There is no switching fee or disinvestment fee if the retiree moves from the SmartAssets investment portfolio in the NMG Umbrella SmartFund to this living annuity.

2. “Hybrid” annuity: NMG Golden Living Annuity, using Guaranteed Annuity portfolio

In this annuity option, provided by Momentum, the legal structure is that of a living annuity, with the drawdown provisions applicable to living annuities. One of the portfolios in the NMG Golden Living Annuity is the Guaranteed Annuity portfolio, which allows the retiree to choose the specifications of the guaranteed annuity.

The Guaranteed Annuity Portfolio pays a monthly guaranteed amount to the living annuity’s Money Market portfolio. The income drawdown from the NMG Golden Living Annuity is first taken from Money Market, and if more income is required, this is taken from the portfolio selected by the member. When a Guaranteed Annuity portfolio is added to the NMG Golden Living Annuity, the retiree must choose certain features that cannot be changed later, namely purchase amount, annuitants, guarantee term and yearly income increases.

Investment into the Guaranteed Annuity Portfolio may not be more than 80% of the value of the NMG Golden Living Annuity at the time of purchase. A single monthly payment is made to the retiree.

There is a choice of four investment portfolios:

NMG SmartEnhanced Aggressive
NMG SmartEnhanced Moderate
NMG SmartEnhanced Conservative
Guaranteed Annuity Portfolio

The fees that apply are:

Platform fee	Investment fee
0.35% p.a. for the first R1m of assets, 0.20% p.a. for the next R1.5m of assets, 0.15% p.a. for the next R5m of assets and 0,10% thereafter.	The fee for the selected portfolio will apply. The benefit will be disinvested from the investment portfolio in the NMG Umbrella SmartFund and transferred to Momentum.

3. With-profit annuity – Momentum Golden Income With-Profit Annuity

This annuity option, provided by Momentum, provides a guaranteed monthly income for the life of the retiree. The annual annuity increases cannot be taken away once granted and are based on the investment returns of the underlying bonus generating portfolio. There is an option to include an annuity for the retiree’s spouse after death, and an option to choose a guaranteed payment period. The retiree can choose the Post Retirement Interest (PRI) rate from the range offered by the product (from 0% to 3,5% in increments of 0,5%).

The bonus generating portfolio is invested in multi-asset class portfolios.

The fees that apply are:

Administration fee	Guaranteed product total expense ratio
Initial fee: R3 900 (priced into policy) Monthly fee: R63.01 increasing with CPI each year	1.20%, includes cost of capital and portfolio management fees and assuming no change in risk charge.

Fund communication

The fund’s booklets have been updated with links to the documents listed below.

The fund’s member booklet is available in English, Afrikaans, Zulu and Xhosa on these links.
The fund’s Options on retirement booklet is available in English, Afrikaans, Zulu and Xhosa on these links.
The fund’s Options on leaving booklet is available in English, Afrikaans, Zulu and Xhosa on these links.

The communication has also been saved on the fund’s web portal for members to access.

T&C's apply. NMG Employee Benefits (Pty) Ltd (FSP number 33426)

Pre-retirement planning: What options do you have?

According to the Financial Sector Outlook Study (2022) – compiled by Genesis Analytics in

partnership with the Financial Sector Conduct Authority – only 12% of the 3.6 million individuals in the retired age group received a form of income in 2020. The study also revealed that more than 90% of

retirees can’t maintain their standard of living prior to retirement and two-thirds of members have less than R50 000 in their retirement funds.

We discuss the crucial topic of pre-retirement planning, highlighting the various options individuals can consider as they draw near to their retirement age. We delve deeply into the significance of initiating retirement planning early and examine a variety of financial tactics and investment alternatives to ensure a retirement that is both financially secure and personally rewarding.

Understanding the significance of pre-retirement planning

According to the Global Retirement Index (2022), these are the top 10 retirement planning mistakes:

Underestimating the impact of inflation: 49%
Overestimating investment income: 42%
Setting unrealistic return expectations: 40%
Underestimating how long you will live: 46%
Being too conservative in investments: 41%
Forgetting to factor in healthcare costs: 39%
Relying too much on social security benefits: 33%
Being too aggressive in investments: 21%
Failing to understand income sources: 35%
Underestimating real estate costs: 23%

Planning for retirement should start the day you start your first job. The reality is that most South Africans only start planning for retirement when they are older – if at all. Starting the process well in advance will give you more time to save enough and plan to meet your goals.

Many people think retirement planning is only for the older generations, or that they are too young to concern themselves over something that will happen in the far future. These types of misconceptions result in people having to save a much bigger portion of their salary to catch up, usually at a time that they are struggling financially to keep their family afloat. All the top 10 retirement planning mistakes can be avoided if you speak to a financial planner when you are still young, and they partner with you throughout your career. These mistakes can be very costly and can set you back substantially. Some may bounce back but only with proper planning and discipline. Sadly, others don’t recover.

Assessing your financial situation

The first thing you need to do is conduct a thorough assessment of your current financial situation, including your savings, investments and outstanding debts. You also need to put together a list of your expenses today so that you can estimate what you expect your expenses to be at retirement.

Most financial advisors will tell you that you will need around 75 to 80% of your pre-retirement salary as an income in retirement. This depends on the lifestyle you want in retirement. Some people are happy to stay at home and live a moderate life while others would prefer to travel and see the world. Your personal aspirations will affect how much of your salary your retirement income will need to replace. That’s why it is so important to set goals, devise a financial plan to achieve them and then assess and review your plan at least once a year to achieve your retirement dreams. There are various handy online tools that you can use to calculate how much you need, just remember that they are used for illustrative purposes only. A professional financial advisor will be able to do more accurate calculations based on your personal circumstances.

Exploring retirement savings vehicles

There are different retirement savings vehicles in South Africa and abroad. In the table below we compare the main advantages and limitations of four of the most common savings vehicles to help you make informed decisions.

	Advantages	Limitations
Pension funds	Your money is invested and can grow.When you retire, you can take one-third of your money as cash (less tax).If you pass away, your money doesn’t go into your estate.If you go bankrupt, this money can’t be touched.	You will only be able to access a portion of your money at different times during your career.You are taxed on withdrawal.
Retirement annuities	Your money is invested and can grow.When you retire, you can take one-third of your money as cash (less tax).If you pass away, your money doesn’t go into your estate.If you go bankrupt, this money can’t be touched.Annuities are tax-deductible – with certain limits.	If you want to access your money before age 55, you will have to pay penalties.Some annuities are expensive – not all.
Preservation funds	Your money is invested and can grow.You have different investment options.You can withdraw money from a preservation fund – but you only have one opportunity to do so.If you pass away, your money doesn’t go into your estate.If you go bankrupt, this money can’t be touched.	You can’t make ongoing contributions to a preservation fund.You are taxed on withdrawal.
Tax-free savings accounts	The growth you make is tax free.You can withdraw from this savings account at any time.You can contribute monthly or lump sums.A good choice for supplementing your retirement savings.	There are limits as to how much you can save in a year. You limit your lifetime contribution level if you withdraw money.If you exceed the savings limit, you will pay a penalty.

Diversifying investments for retirement

Diversifying investment portfolios is an important strategy for managing risk and enhancing returns. With the South African economy facing economic instability and the global market shifts, relying on a single asset class can expose you to vulnerability. By spreading your investments across a range of assets like shares, bonds, real estate and commodities, you can mitigate the impact of market fluctuations or economic downturns. Diversifying acts as a safeguard, ensuring that the potential losses you experience in one sector can be offset by gains in another. Moreover, diversification optimises returns by capturing growth opportunities across various sectors that might perform well even when others underperform. A well-structured, diversified portfolio is an indispensable tool for navigating uncertainties while aiming for consistent, long-term financial success.

Creating your retirement budget

It isn’t easy to forecast your expenses – especially when retirement is still so far away. These questions will help you think about your future budget for retirement:

Housing: will I have paid off my house? Will I sell my house and buy a small flat to curb costs and maintenance? Can I move in with family or rent out my garden cottage?
Healthcare and general medical care: what chronic conditions do my spouse and I have that could add to my expenses at retirement?
Insurances: what insurances will I need?
Car: will we need two cars as a couple or only one? Will the car be paid off? What maintenance costs do I need to prepare for? Do I need a smaller, more economical car? How much petrol will I need?
Domestic help: will I need a gardener, a helper or a carer?
Groceries and entertainment: what kind of lifestyle do I want to live?

There are many other factors to consider, these questions will prompt you to develop a realistic retirement budget to maintain financial stability throughout your retirement years.

It’s important to remember that a budget is organic. It changes every month and even more so every year. Life has a way of taking unexpected turns. The best way to prepare for those unexpected turns is to manage your budget effectively, minimise your taxes where you can and put some money into an emergency savings account so that you are prepared for any eventuality.

Always get professional financial advice

There is real value in consulting with a professional financial advisor or retirement planner to create a personalised retirement plan. They are well-versed in the different retirement savings vehicles available in the market and can find the right option for you, at the right price, that matches your unique circumstances.

It is important to do your homework when you look for an accredited advisor. Don’t be scared to ask for their experience and credentials, request references and get quotes to compare their solutions. You are not seeking a once-off service, your adviser should partner with you for life – even into retirement.

Proactive pre-retirement planning empowers you to take control of your financial future and enjoy a fulfilling retirement with your family and friends. The effort you put in today will reflect in the rewards you reap during your retirement years.

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

Understanding the different ways to save for retirement

South Africa is facing many complex challenges. In the financial services industry, one of those challenges is our poor savings culture. The complexity of this challenge lies in the fact that if individuals don’t save, it negatively impacts society and the economy. As a result, the government is reforming the retirement fund industry to encourage saving and, in doing so, change the trajectory of this concerning trend.

We believe that the lack of adequate financial education also plays an integral role in our poor savings culture. In this article, we unpack the features of four different savings vehicles available on the market today, to empower and encourage more individuals to save.

Make the most of your employer’s retirement fund: pension and provident funds.

Employer-sponsored pension or provident funds are savings vehicles that employees contribute towards, for the duration of their employment. According to National Treasury, approximately two-thirds of formal sector employees belong to a retirement fund, which makes South Africa’s rate of occupational retirement funding coverage of formal sector employees amongst the highest in the world. This statistic inspires hope, but also begs the question: are these employees making the most of their occupational retirement funds? Most employer funds offer flexible contribution rates, which may provide flexibility, but the disadvantage is that many employees choose the lowest contribution rate to access a higher take-home pay. It is important to understand that employer-based retirement funds offer significant tax incentives, among other benefits, so members should try to contribute at a higher rate where possible.

Advantages

If you belong to your employer’s fund, your contributions are deducted directly from your salary, so you don’t “miss” the money that is saved in the fund. You also pay institutional fees, which makes it more cost-effective than investing in other savings vehicles in your individual capacity.

Disadvantages

When you leave your employer, you may be tempted to take your retirement savings as cash. This is where most South Africans fall short. You’ll pay tax on the amounts that you take as cash, and you will have to start saving for retirement all over again. The older you are when you start saving for retirement, the harder it will be to save enough money to cover your day-to-day expenses.

Minimum savings amount

There is no minimum amount needed to start saving in your employer’s fund. In most cases it is compulsory, and you start contributing as soon as you receive your first salary.

Withdrawal limits – rules and restrictions

Each retirement fund has its own set of rules that are approved by the Financial Sector Conduct Authority and the South African Revenue Services. You can’t withdraw from the fund while you are still employed but you can take all or a portion of your savings when you leave your employer. When you retire you can take one-third of your savings as cash, the other two-thirds must be used to buy a retirement annuity.

Tax implications

You will be liable for tax on any amount that you withdraw from your savings in cash. The first R550 000 you take over your lifetime is tax-free, but it is better to keep that tax-free amount for when you retire, and you need to make the most of your life savings.

Nomination of beneficiaries

Your employer will require you to complete a nomination of beneficiaries form, which will help the trustees of the fund decide who should receive your retirement savings if you had to pass away.

You can also save for retirement by investing in a retirement annuity

Retirement annuities are specialised investment vehicles that are governed by the Pension Funds Act. They are a good fit for self-employed individuals or formally employed individuals who feel they are not saving enough through their employer’s fund. There are various types of retirement annuities available on the market. Most retirement annuities give you the option of investing a lump sum, monthly amounts via debit order or a combination of both. You can also have a say in how your money is invested, depending on the retirement annuity you select.

Advantages

Retirement annuities are tax-efficient and the growth on your savings is tax-free. Another important advantage of the retirement annuity is that creditors cannot gain access to the money you have saved in your retirement annuity if you suffer a financial setback. In addition, your savings in a retirement annuity won’t form part of your estate, meaning that these savings won’t be subject to estate duty or executor fees.

Disadvantages

In general, you can only retire from the retirement annuity fund from age 55 or for reasons of ill health, if you have not been a South African tax resident for an uninterrupted period of at least three years on or after 1 March 2021 and you are withdrawing your whole amount in the fund, if the paid up value of your retirement annuity fund is less than R15 000 and you are withdrawing your whole amount in the fund or if you have left South Africa at the expiry of a work or visit visa and you are withdrawing your whole amount in the fund.

Accessing your money – rules and restrictions

You can access your savings at any stage after age 55. Pension law dictates that you can access one-third of this money as cash – the rest of the money must be paid out to you in the form of a monthly pension.

Minimum savings amount

Most retirement annuities have minimum savings amounts to get started. This will however depend on the provider you choose to invest with.

Tax implications

There is no income tax or capital gain tax charged on the growth of your investment. You can invest up to 27.5% of your annual taxable income, subject to the R350 000 per year maximum, in a retirement annuity.

Nomination of beneficiaries

The provider that you choose to purchase a retirement annuity from will require you to complete a nomination of beneficiaries form. If you pass away, the money saved in the retirement annuity will be paid out to the beneficiaries you named on this form.

Tax-free savings accounts can support your retirement savings.

The South African government introduced tax-free savings accounts in 2015 to encourage people to save more. All proceeds that you get from this savings vehicle are tax free, including interest income, capital gains and dividends. The tax-free amount is limited to R36 000 a year (which equates to R3 000 a month) and R500 000 over your lifetime.

Advantages

The main advantage of a tax-free savings account is the tax savings you get on your investments. You also have flexibility when it comes to accessing your money – you can withdraw it at any time.

Disadvantages

The limit on how much you can save in a year makes this investment somewhat tricky to navigate. If you withdraw money from your account, you can’t top it up later in the year. If you deposit money into your account that takes the balance over the set limits, you will pay 40% tax on that amount. In addition, to make the most of this savings account, you need to start your annual saving strategy while SARS starts its new financial year – in March.

How to access

Most banks and financial institutions offer tax-free savings accounts. You may need to spend some time reviewing the different products available before deciding which one would suit your needs best.

Minimum savings amount

This will depend on the provider you decide to use.

Withdrawal limits – rules and restrictions

As mentioned, your money in a tax-free savings account is available immediately – just remember that you can’t replace the money that you withdraw during each tax year.

Nomination of beneficiaries

If you pass away, your contributions to a tax-free savings account will form part of your normal estate – it will be dealt with according to your last will and testament.

There are various other ways to save for retirement, or for any long- and short-term goals. If you fit into the category of those who haven’t saved enough, or not at all, remember that it is never too late to turn your financial future around. If you need more help understanding any of the savings products available on the market, NMG has several skilled and experienced financial advisors who can explain the pros and cons to you in more detail.

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

Key indices to 31 March 2023

Key indices	1 month to 31 March 2023	3 months to 31 March 2023	1 years to 31 March 2023	3 years to 31 March 2023	5 years to 31 March 2023
Local shares FTSE/JSE All Share TR ZAR	-1.3%	5.2%	4.9%	24.2%	10.4%
Local resource shares FTSE/JSE Resources 10 TR ZAR	2.9%	-4.4%	-14.1%	29.2%	19.8%
Local industrial shares FTSE/JSE Industrials l 25 TR ZAR	-0.7%	14.5%	28.5%	18.9%	9.5%
Local financial shares FTSE/JSE Financial 15 TR ZAR	-5.8%	0.4%	-7.9%	23.7%	2.1%
Local property FTSE/JSE SA Listed Property TR ZAR	-3.4%	-5.1%	-3.4%	18.2%	-4.1%
Local bonds Beassa ALBI TR ZAR	1.3%	3.4%	5.8%	11.6%	6.9%
Local cash STeFI Composite ZAR	0.6%	1.7%	6.0%	4.8%	5.8%
Global shares MSCI ACWI GR USD	-0.3%	12.0%	13.0%	15.7%	16.5%