Saving for retirement

I CAN'T emphasise the importance of saving for retirement enough and I write regularly about the subject, given that the majority of employees are members of a company retirement programme.

I CAN'T emphasise the importance of saving for retirement enough and I write regularly about the subject, given that the majority of employees are members of a company retirement programme.

Probably the largest amount of money you will ever accumulate will be through your fund. Though each fund is different, the fundamentals remain the same.

JOINING A FUND

Should a company not have retirement benefits it is important to buy your own RA or other savings plan. Should the company start a retirement fund after you have joined, it is not compulsory to become a member because the company has now changed the terms and conditions of your original employment.

But don't hesitate to join even if you won't stay with the company for long. If you join a company that has a fund and you are on the permanent staff, then it is compulsory to join.

BENEFITS

Group life cover - A lump sum benefit on death equal to a multiple of your salary, which could be two to four times your annual salary.

Disability Benefit - There are different types:

l Income disability. You will be paid a monthly amount of about 75percent of your monthly salary until you are able to work again. Check if you have this cover.

The waiting period could be between three and six months. If it is three months, you will receive the benefit in the fourth month.

l Capital disability is a lump sum payout in the event of permanent disability. There are different definitions of this.

1. "Own or similar occupation" is where your occupation is clearly defined and you will be paid out if you are disabled and unable to continue your 'own' work or something very similar, bearing in mind your training, status, knowledge and ability.

2. "Any occupation"is where you are unable to perform any job at all.

CONTRIBUTION

You can be in a fund where salary is calculated on a cost-to-company basis and the employer makes the full contribution.

Alternatively, you and your employer should each contribute 50 percent. Be aware that the costs of group life, disability, plus administration fees, come out of this contribution. The remaining portion goes to retirement savings.

RETIREMENT SAVINGS

Most funds invest in specific portfolios for members. The longer the term until retirement, the more growth oriented the exposure will be to equities.

Types of Fund

Employers either have a pension or a provident fund. The main difference is the tax deductibility of member's contributions and the payments of benefits at retirement.

Provident Fund - a member is entitled to take the whole amount in cash.

Pension Fund - a member may only receive a third in cash. The balance has to buy a pension.

COMMUNICATION

You receive an annual statement of your benefits. Check the values each year.

l The writer is financial adviser of Bryan Hirsch Colley and Associates. E-mail bryanh@bhca.co.za or telephone 011-880-4888.

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