Pre­serv­ing your prov­i­dent fund

Weekend Witness - - Money -

I’m about to re­ceive my prov­i­dent fund money and want ad­vice on how I can pre­serve it. I want to in­vest a por­tion as an en­dow­ment and want to use an­other por­tion to buy an an­nu­ity.

Are there such prod­ucts in the mar­ket? Which com­pa­nies?

Arno Burger, a cer­ti­fied fi­nan­cial plan­ner and reg­is­tered tax prac­ti­tioner with Fid­ius, re­sponds:

Some of the as­sump­tions I make are that by “re­ceiv­ing” your prov­i­dent fund, you are ter­mi­nat­ing par­tic­i­pat­ing em­ploy­ment with the fund. Also “pp­re­serve it” means yyou want to rein­vestin­vest the value to ac­cu­mu­late in real terms un­til re­tire­ment, at which stage you want to in­vest a por­tion as dis­cre­tionary cap­i­tal (”an en­dow­ment”) and the residue must be used to “buy an an­nu­ity” — in­come over your out­stand­ing plan­ning term.

Yes, there are such prod­ucts and op­tions, and you can con­sider this opin­ion based on the above as­sump­tions. • The prod­uct to ac­com­mo­date the trans­fer is a preser­va­tion prov­i­dent fund (PPF) and you can in­struct the trustee of your cur­rent prov­i­dent fund (PF) to trans­fer your fund pro­ceeds tax-free. This prod­uct will be suit­able for preser­va­tion un­til re­tire­ment, when you should con­sider a gguar­an­teed an­nu­ityy (GA) or a liv­ing g an­nu­ity (LA) to ac­com­mo­date the residue af­ter with­drawal of a por­tion for dis­cre­tionary cap­i­tal or emer­gency funds, etc. • A PPF al­lows for one with­drawal be­fore re­tire­ment, which can be any por­tion or all of the fund value. With­drawals prior to re­tire­ment (age 55) are taxed and de­ducted from fu­ture tax-free re­tire­ment lump sums. To save on tax, the full value of the PF should be trans­ferred to a PPF. A pro­por­tional with­drawal to sup­ple­ment dis­cre­tionary funds must be care­fully con­sid­ered, post­poned un­til re­tire­ment if pos­si­ble and lim­ited to min­imise tax. The cur­rent tax-free lump sum at re­tire­ment is R315 000, where with­drawals be­fore re­tire­ment will at­tract tax on amounts above R22 500. • Most in­surance com­pa­nies and linked unit trust in­vest­ment plat­forms (LISPs) of­fer the prod­uct. It is ad­vis­able to dis­tin­guish be­tween the two and get a writ­ten com­par­i­son be­tween the op­tions. Such a com­par­i­son should at least il­lus­trate fees and avail­abil­ity of funds for ex­po­sure of your in­vest­ment.

Switch­ing be­tween un­der­ly­ing in­vest­ment funds should be free of charge and sim­ple. Your funds should be avail­able for your di­rect log in and easy track­ing on the In­ter­net. • Com­mon ad­vice will fo­cus on the prod­uct and em­pha­sise the trans­fer free of tax, as well as no tax on growth within the fund. The prob­lem with this type of coun­sel is usu­ally the ne­glect of ad­vice on the cor­rect prod­uct to give you ththe flex­i­bil­ity and as­set class ex­po­sure you ne­need to achieve your re­turn ob­jec­tives. • There are many pit­falls and por­tions of leg­is­lala­tion that can af­fect the im­ple­men­ta­tion. To mmake sure you get it right, you should ar­range an ap­point­ment with a prac­tis­ing cer­ti­fied fi­nanan­cial plan­ner (CFP) and in­sist on deal­ing on a fee ba­sis.

All fees must be de­clared in writ­ing, in ad­va­vance and in mon­e­tary terms. Your in­struc­tion shshould con­sider the fol­low­ing word­ing: “Ad­vivise me on a suit­able and ap­pro­pri­ate prod­uct (tto pre­serve my cur­rent prov­i­dent fund pro­ce­ceeds), risk pro­file and in­vest­ment strat­egy to lim­limit tax and achieve my ob­jec­tives in real teterms for re­tire­ment at age (for ex­am­ple 55), prpro­vide for a with­drawal from the fund at re­tir­tire­ment/or prior if nec­es­sary (spec­ify the amamount and time) and ex­pose the residue to prpro­vide a real in­come and growth achiev­able ovover my plan­ning term/life ex­pectancy.”

— Fin24.


Shar­ing her ex­pe­ri­ence of a dra­matic im­prove­ment of her busi­ness af­ter join­ing a sav­ings club is Sizani Ngubane. Pic­tured are (from left) Thobek­ile Maphumulo (Mkham­bat­hini Mu­nic­i­pal­ity mayor), Pro­fes­sor Kr­ish Govender (vice chair­per­son of the KZN Fi­nan­cial Lit­er­acy As­so­ci­a­tion), Ina Cronjé (KZN MEC for Fi­nance), Sizane Ngubane, An­ton Krone (deputy chair­per­son of the Woman and Vul­ner­a­ble Groups com­mit­tee of the As­so­ci­a­tion) and Yusuf Bham­jee (SaveAct Ex­ec­u­tive Di­rec­tor and uM­gun­gundlovu District Mu­nic­i­pal­ity mayor). A grad­u­a­tion cer­e­mony was re­cently held for about 300 women from the Ta­ble Moun­tain area, un­der the aus­pices of the KZN Fi­nan­cial Lit­er­acy As­so­ci­a­tion and the KZN Trea­sury. The women — who are mem­bers of the SaveAct-pro­moted sav­ings and credit groups — were recog­nised for their roles in es­tab­lish­ing the mem­berled groups, as well as for their par­tic­i­pa­tion in an in­no­va­tive fi­nan­cial ed­u­ca­tion pro­gramme. SaveAct is a non-profit or­gan­i­sa­tion that was es­tab­lished in 2005 to pro­mote sav­ing.

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