Do you want to retire in financial comfort? If so, you need to take a lot more note of what is happening in your retirement fund.
The main report in Personal Finance today is a reflection of the fact that many of us do not take nearly enough interest in what is happening to our retirement savings. Thirty years or even 10 may seem a long way away - and even if you are concerned, you may feel the whole issue is a bit too complicated and that someone else can see to it.
You do this at your peril.
On Tuesday next week amendments to the Pension Fund Act, which were approved by Parliament two years ago, come into force. This is a milestone in the retirement industry and vital to everyone who is a member of a retirement fund.
For most of us lucky enough to be employed, our single biggest investment in life is likely to be our retirement savings. As a rule of thumb, your retirement savings will be equal to between two and three times the value of your home. So what, you may ask? You and your employer pay in every month and when you retire, the money will be there.
Repeatedly life assurance companies churn out a statistic (for which I have never seen the scientific basis) that only six people in a hundred will reach retirement age with sufficient funds to see out their final years in comfort. Even if this figure is out by 100 percent, it is startling. And these statistics were worked out when most people were on what are called defined benefit pension funds.
These schemes worked on the proviso that you contributed a set percentage of your salary every month and your employer also put in a share. The day you retired, you were guaranteed a certain pension based on the number of years you were a contributing member of the fund and how much you earned at retirement.
For most people this was not enough money, particularly when we moved into an era of inflation. However, there was not much you could do about it, apart from having separate retirement savings.
Now, however, very few companies offer defined benefit funds, for a number of reasons , particularly the fact that companies no longer want to take the risk of guaranteeing you a pension at a pre-determined level.
Most companies now offer only what are called defined contribution schemes. Here your employer no longer takes the risk of ensuring that you have a proper pension on the day you retire.
Your employer only agrees to pay a certain amount every month into your retirement fund. In other words, a defined contribution. If your fund bombs out in its investment performance, the problem is yours, not that of your employer.
This is where the new Pensions Act is important.
Until now, employers could and often did treat retirement funds almost as an extension of their business. They selected the trustees and the trustees would make all the investment decisions. Money would be lent by funds to the employer's business, funds were invested in the employer's business and even used to pay for buildings used by the business. In many cases, these practices were questionable, but there was nothing anyone could do. about it.
Now with the new act you get to elect half the trustees on the management board of your fund (the other half are nominated by management). Members can expect and demand that trustees do a proper job.And you can sue your trustee for not doing so. You can also demand that the trustees report back to you about what is happening on the fund.
The important thing is, accept that the money that you are saving for retirement is already yours. And make sure you know what is happening to it.
The first step is to ensure that your fund is properly constituted in terms of the Act and that you have elected trustees.
The next step is to ensure the trustees are doing their duty and showing you that they are doing your duty in looking after your interests as a member.
And if you really want to play a part, make yourself available for election as a trustee.
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Spare a thought for Old Mutual. In nearly every asset management company in South Africa you will find people who started off their careers at Old Mutual. So what is it that always makes them want to leave Old Mutual? The latest walk out of 13 people people is a serious blow - it is particularly serious when more people in the country entrust their savings to Old Mutual than any other company.