10 things to know about your retirement funds

Being highly tax-efficient vehicles for retirement savings, retirement funds play an important role in most people’s investment portfolios. But the retirement funding industry is heavily regulated meaning that several restrictions and limitations apply to the money saved in approved retirement funds which are important to understand before committing your savings to such a vehicle.

While there are key distinctions between a provident and a pension fund, the term ‘pension fund’ is generally used as a broad term that includes both types of funds. Where a person does not qualify to join an occupational fund for whatever reason, or where a person wishes to contribute privately to a retirement fund over and above their occupational fund contributions, they can do so through a retirement annuity fund.

While many new generation retirement annuities are housed on a LISP platform in the individual investor’s name, older retirement annuities are in fact insurance policies which take the form of a contract between the insurer and the policyholder, and it is important to understand the distinction.

An investor can contribute to as many retirement funds as he likes – including pension, provident or RA funds – although the tax-deductibility of contributions will be calculated cumulatively across all the funds. In addition to the tax benefits provided on retirement fund contributions, investors do not pay tax on investment returns earned such as interest income, dividends and capital gains.

Being the only exception to this, preservation fund legislation allows investors to make one full or partial withdrawal prior to the age of 55. Where an investor makes a partial withdrawal, he will not be able to make another withdrawal relating to that contribution, and the balance of the preservation funds will have to remain invested until retirement or death.

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