According to Dean Graham, General Manager at Old Mutual Corporate, here are the most frequently asked questions about retirement funds and how they will work for you.

What are the differences between a pension and provident fund and how do these differences affect me?
The main difference is how you receive your benefit at retirement, as well as the tax implications. When you belong to a pension fund, you can take one third of the final benefit in cash. Under a provident fund, the full amount of the benefit available at retirement may be taken as a lump sum cash payment.

The tax concessions for members in respect of the two types of funds differ. In a pension fund, up to 7.5 percent of a member’s salary is tax deductible. In a provident fund, there is no tax-deductible benefit for a member.

What are the tax implications when I leave the fund before retirement?
How tax affects you will depend on what you do with the money when leaving. When you change jobs, for instance the best option is to preserve the contributions that you have made to your retirement fund. To this end, consider transferring it straight into a preservation fund, where it will not be taxed, and grow and accumulate for when you retire.

Alternatively, you can transfer it to your new employer’s fund, or leave it with your current employer (if the rules of the fund allow). If you take the money in cash, you will be fully taxed on it.

Does my fund offer death, disability and funeral cover?
Your employer or your fund may have group life assurance policies for all employees which would pay out in the event of your death, or should you become disabled. In the event of your death, your retirement fund will pay your beneficiaries all the contributions you have made to your fund, plus interest and less expenses, as well as the group life assurance amount (if applicable).

Does my fund offer me a choice in terms of the underlying investments?
You need to determine how your fund plans on investing all the contributions it receives. Graham states that trustees should have an Investment Policy Statement which will prescribe how the fund’s assets are to be invested.

You should also determine whether you have a choice in how that money is invested. This is called member investment choice. If your fund offers you member investment choice, you need to ensure that you are suitably skilled to make these important financial decisions.

What is life stage planning and how does it affect my decision on choosing an investment option?
Some funds offer what is referred to as life staging investments. What this essentially means is that there is an investment portfolio which caters for different life stages, with a different investment strategy for each stage.

It is based on the principle that the younger you are, the more you are able to take risks to increase your potential investment return. As you grow older, however, you have to become more and more careful with your investments so that your retirement fund savings are not negatively affected by major market fluctuations just before you retire.

Graham says it also makes sense to view your retirement savings as part of your overall financial planning and that it is therefore best to obtain the services of a qualified financial advisor to help you plan for your circumstances.