LAURA DU PREEZ: Change in law will let you delay retirement
You may soon have the option to delay your retirement age by transferring your retirement savings from an employer-sponsored retirement fund or umbrella fund to a retirement annuity.
This year's draft Taxation Laws Amendment Bill proposes that you be given the option to transfer your savings in an employer-sponsored pension or provident fund to an RA after your retirement from an employer.
Until March 1 2015, you were obliged to take your lump sum and/or buy an annuity with savings in an employer-sponsored retirement fund when you reached the retirement date set by your employer.
If you wanted to continue working, your best bet was to transfer your savings to an investment-linked living annuity and withdraw the lowest amount allowed, namely 2.5% of your investment, as a monthly pension.
But two years ago the Income Tax Act was amended to enable you to choose the date on which you want to withdraw your lump sum and/or purchase a monthly annuity or pension from your fund.
However, to delay your retirement from an employer-sponsored pension or provident fund, you are currently obliged to leave your retirement savings in that fund and you cannot continue to contribute to the fund.
The benefit of leaving your savings in your employer-sponsored fund is that it enables you to preserve your retirement savings free of tax and in a fund with lower costs than those on funds available to you as an individual investor.
The explanatory memorandum to the draft Taxation Laws Amendment Bill notes, however, that you may wish to sever ties with an employer whose employ you have left.
Members who delay their retirement and those who resign from an employer and leave their savings in the fund become what are known as "paid-up" members of the fund.
Kobus Hanekom, principal consultant at Simeka Actuaries and Consultants, says while funds are obliged to allow you to keep your savings in the fund, they are under no obligation to change their rules and make it attractive or comfortable for you to remain in the fund, for example by creating appropriate investment choices.
More time to save
Should the proposed amendment be adopted and you are able to continue working after retirement, you will be able to transfer your savings to an RA and to continue saving in that RA.
John Anderson, head of group client solutions at Alexander Forbes, says the proposed amendment is an important one in a changing world of work where people are living longer, working multiple jobs and contributing to a retirement fund well beyond the age of 65.
Average life expectancies at age 65 are now 15 to 18 years for men and 20 to 22 years for women, he says.
The idea of retirement is changing rapidly. The days when people worked for 35 to 40 years before retiring and never worked again are gone, he says. Research conducted by Alexander Forbes shows that South Africans are retiring with savings that provide an income of only 30% of their final salaries. Allowing you to continue working beyond your fund's normal retirement age can give you more time to build up savings.
Anderson says delaying your retirement not only allows you more time to grow your savings, but enables you to earn more compound interest on the large amount you will have saved.