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The Citizen
3 days ago
- Business
- The Citizen
How do you know you are ready to retire?
Retirement does not happen on the day of your 60th birthday anymore. These days you must be financially ready to retire. How do you know you are ready to retire? It is no longer a question of how old you are, but of how much you have saved to ensure you can have a comfortable retirement. Siphamandla Buthelezi, head of platforms at advisory firm NMG Benefits, says there is a moment in every career when you should stop asking, 'How much have I saved for my retirement?' and start asking, 'What now?'. 'Retirement is not the end of your financial journey but the beginning of a new one. While most of us spend decades building up our retirement savings, far fewer take the time to understand how to turn our savings into a reliable income, navigate new tax realities and properly plan our estate. 'This is why people approaching retirement must ask the right questions. The ideal time to start putting everything in place is five years before you retire. This enables you to make informed decisions, iron out any admin issues and understand the impact of your choices.' Here are the most important questions you should ask your financial adviser: What happens to my savings? Is it better to opt for a living annuity or a life annuity? Should you take a portion as a lump sum? Each comes with different income options, tax implications and risks. Buthelezi says If you choose a living annuity, you will have to decide on a realistic monthly drawdown rate and ensure your investments can keep up with inflation. 'A life annuity, on the other hand, offers guaranteed income for the rest of your life but comes at the cost of flexibility.' ALSO READ: South Africans are living longer and need to plan for longer retirement – here's how How will fees affect my income? Platform administration, investment management, and advice fees can significantly reduce your net income over time. 'Every rand spent on fees is a rand that does not support your lifestyle, and therefore, you should understand what you pay for and whether it is reasonable.' Are there tax implications? If you are behind on your taxes, Sars will deduct the outstanding amount from your savings before you receive a cent, Buthelezi warns. 'In addition, any lump sum you may take is taxed according to a sliding scale, although the first R550 000 is tax-free. Monthly drawdowns from living or life annuities are taxed just like any other income.' ALSO READ: Poor financial literacy about retirement costing SA and consumers millions What about medical aid? Unless your employer offers post-retirement medical benefits, your membership ends when your job does, he points out. 'Even if you are allowed to stay on your company's scheme, the portion that your employer may have been paying will likely fall away, leaving you to foot the full premium just as your healthcare needs start to increase.' Apart from the monthly premium, you must also plan for gap cover and chronic condition benefits. Does my will reflect my wishes? Buthelezi says you must ensure your will is up to date and your beneficiary nominations align with your intentions. 'If you are concerned about your future decision-making capacity, you should consider giving someone power of attorney to make financial and healthcare decisions on your behalf. This should not be given lightly. You must fully trust the person and understand what you are authorising.' ALSO READ: Looking for a retirement property? Here's what to look for Will my lifestyle be sustainable? A good rule of thumb is that your retirement income should equal 75% of your final salary, assuming that major expenses, like bond and car payments, have been settled. Buthelezi says this is where a detailed financial and lifestyle audit comes in. You must map out exactly what your income will be, what your expenses will look like and whether there are any shortfalls. He notes that retirement is not just about stopping work. 'It is about stepping into a new chapter with the confidence that your financial foundation is solid. And this process does not begin the day you stop working. It begins today, with asking the right questions.'
The Citizen
01-06-2025
- Business
- The Citizen
What happens to your pension fund when you pass away?
Regardless of what you stipulate in your will, your pension fund money will be distributed according to the kind of fund and its rules. You have contributed to your pension fund all your life, but do you ever think about what will happen to your pension or the rest of it if you are already retired when you pass away? When a loved one passes away, finances are the last thing families should have to worry about, Siphamandla Buthelezi, head of platforms at advisory firm NMG Benefits, says. 'Yet, time and again, grief is compounded by confusion and conflict over pension fund payouts. 'The truth is, ensuring what happens to your pension fund after you die is not as simple as naming a beneficiary or drafting a will. Legislation, cultural nuances and the issue of 'dependency' all play a role in who ultimately receives what.' He says the type of pension or group life fund you belong to, whether approved or unapproved, directly affects how your death benefits are distributed. 'In the case of unapproved pension or group life funds, these are not governed by Section 37C of the Pension Funds Act, meaning the employer or the terms of the policy determine who receives the benefit. ALSO READ: This is what a divorce will do to your pension fund Pension fund paid out to those you chose as beneficiaries 'To ensure fairness, employers typically follow the most recent beneficiary nomination form you completed. However, if you did not update your beneficiary nominations, there is a risk that the benefit may go to people you no longer intended to support after your death.' For this reason, Buthelezi says it is especially important with unapproved funds to regularly update beneficiary nominations to ensure your wishes are accurately reflected and honoured. He points out that the rules are different in the case of approved pension funds. 'Death benefits are distributed in accordance with Section 37C of the Pension Funds Act. 'This means the fund's trustees are legally obligated to investigate and identify the deceased member's dependents and/or nominated beneficiaries and must then allocate the benefit based on financial dependency and other relevant legal considerations. 'The final decision rests with the trustees, not necessarily with the nominations you made. In these cases, trustees of the funds are legally obliged to prioritise financial dependents over nominated beneficiaries. 'When a member of the approved pension fund passes away, the trustees begin an investigation into who financially depended on the deceased and to what extent. 'These investigations often include a deep dive into the deceased's financial records, looking for recurring payments such as rent, school fees, or allowances.' ALSO READ: South Africa's real retirement age? 80! Pension fund paid out to people who depend on you financially Buthelezi points out that this means that even if you have named beneficiaries in your pension fund policy, they may receive nothing if they were not financially dependent on you. Conversely, someone you never intended to benefit, such as a former partner or someone you are having an affair with, could end up receiving a significant portion of your pension savings. 'It is a hard truth, but financial dependency trumps relationship in the eyes of Section 37C of the Pension Funds Act.' He says financial dependency extends to children born out of wedlock or any other individuals who can prove financial dependency on the deceased. In some instances, a wife may even find herself financially responsible for children she never knew existed, especially if she and her husband were married in community of property and he supported these children during his lifetime. 'Having a will is important, but it will not override Section 37C pension fund rules. Your will governs your estate, meaning your assets, investments and personal belongings, but pension funds do not consult your will after you have passed away.' ALSO READ: Warning! The retirement savings gap is widening in South Africa Remember this The takeaway? 'Update your beneficiary nominations regularly and talk to your family about your relationships and commitments. 'We see all too often how spouses only find out how their partners lived and who they supported after the partner has passed. 'But by then it is too late to influence their decisions or safeguard your financial wellbeing.'
The Citizen
04-05-2025
- Business
- The Citizen
This is what a divorce will do to your pension fund
It is better to know upfront how a divorce will affect your pension fund and retirement savings. A divorce does not merely end your marriage; it can also have long-term financial consequences, particularly regarding your pension and provident fund. Many people are unaware that their retirement savings can be split in a divorce and many spouses do not realise they have a right to claim a portion. On the other hand, many people believe they are entitled to a portion when they are not, Siphamandla Buthelezi, head of platforms at advisory firm NMG Benefits, says. 'When a couple divorces, the spouse who is not a member of the pension fund (the non-member spouse) can potentially claim a share of the member spouse's pension. The 'clean-break principle' makes these payouts easier because it allows for an immediate payout to the non-member once the divorce is final.' ALSO READ: Can I get a percentage of my husband's preservation fund in our divorce settlement? The clean-break principle affects your pension fund in a divorce Buthelezi says the clean-break principle makes payouts more accessible for non-member spouses as they do not need to wait until the member retires, resigns, or dies before they can access their share. 'This principle was introduced into South African law to provide fairness and financial independence for spouses after a divorce. They can be paid as soon as the divorce is granted and the fund processes the claim.' He says how a pension fund is divided depends on the presiding judge or magistrate's ruling and the marriage contract in place: If you are married in community of property, all your assets, including pensions, can be shared upon divorce; If you are married out of community with accrual, the growth in your pension savings during the marriage can be split, but the pre-marriage amount is protected; If you are married out of community without accrual, the pension remains with the member, unless otherwise agreed in the divorce settlement. ALSO READ: Before the lobola negotiations, discuss an ante nuptial contract with your partner What your pension fund needs in the case of a divorce Buthelezi says a pension fund will only recognise a claim if there is a decree of divorce stamped by the official court, which implies that the marriage was legally valid, whether this is via a civil, religious, or customary process. He points out that a customary marriage is legally valid in South Africa if both parties are over the age of 18 and have consented to the marriage in accordance with customary law. 'There must be evidence that the marriage was negotiated, entered into, or celebrated in accordance with customary traditions, including lobola negotiations and the formal handing over of the bride.' While customary marriages should be registered with the department of home affairs, failure to register does not invalidate the marriage, he says. Polygamous marriages are recognised, provided they comply with applicable customary practices and legal procedures, including applying to the court for approval of a written contract regulating the future matrimonial property system. ALSO READ: Customary and civil wives battle it out in court with paternity issues exposed – here's who won Customary law and your pension fund According to Buthelezi, it is possible for people to be legally married under customary law without being fully aware, particularly when cultural practices, such as lobola or traditional ceremonies, have taken place, which may meet the legal requirements for a valid customary marriage even without formal registration or a written agreement. 'In some cases, individuals may not realise they are legally married under customary law. However, any future marriage is invalid without a legal divorce occurring first. In addition, there have been instances where individuals believed they were legally married, only to discover that their partner was already married. 'Regardless of whether the partner was aware of their marital status, this invalidates the second marriage and the 'second spouse' loses their rights, including the right to claim pension benefits.' ALSO READ: This is why Somizi and Mohale weren't legally married Marriage had to be legally valid for pension fund to pay out He points out that if a member can prove that a marriage is not legally valid and there is no decree of divorce, the pension fund is not obligated to pay the non-member. For example, if a couple believed they were married under customary law, but the court agrees that not all necessary traditional steps were completed, there will be no claim against the member spouse's pension fund. Buthelezi says it is also important to understand the tax implications. 'If the member spouse takes their portion as a cash payout, it will be subject to tax at the applicable withdrawal tax rates, which may vary depending on the amount. 'However, if the payout is transferred directly into another retirement savings fund, such as a retirement annuity or pension fund, the transfer will not be taxed at the time, as long as it complies with the relevant regulations. 'Divorce is hard enough emotionally and therefore understanding the financial and legal implications, especially around pension and provident funds, can save both parties from the added financial stress and loss later on.'
