What will happen if I elect not to buy a life annuity?

A Moneyweb reader asked: Can you please tell me what will happen to your retirement savings should you turn 55, and you don’t elect or instruct the fund if you want to buy either a living annuity or a life annuity?

And what if the fund is being cancelled or is in the process of being cancelled?

Where will that deferred pensioners’ money be held?

The fund I am asking about was administered by Absa consultants and actuaries before it was bought by Sanlam life insurance.

The answer:

Your retirement savings are governed by the rules of the Pension Funds Act.

Currently, age 55 is the youngest you can retire and draw down on your retirement savings.

The upper age limit used to be 70 but this was removed a while ago meaning you are never forced to retire from your retirement fund. All retirement funds do however have their own fund rules which cannot conflict with the Act.

In principle, nothing will happen to your retirement fund when you reach age 55 and you do no elect to retire from the fund. It should all remain in the same vehicle it is in. It should also remain invested in whatever underlying investments it was invested in before age 55.

Some funds may have a rule that they automatically switch you into a less volatile underlying investment as you near retirement age. This is normally done to protect your capital and only done if they do not hear back from you.

Your question about a fund being cancelled is a little trickier to answer. I am assuming that by cancelled you mean the fund is closing. This is a common occurrence when funds consolidate, and the rules of the Pension Funds Act must be followed by the fund.

In simple terms, your retirement savings will be transferred to another retirement vehicle which will generally be of the same nature and have similar rules. This process can take some time and there is quite a lot of compliance that goes along with the process. Once your retirement benefit is transferred you become a member of the new fund and have an allocated pension benefit in that fund.

You mention that Absa was the original provider, and that Sanlam acquired the fund. Perhaps the starting point is to contact the original providers with your membership number and scheme name. You will then be able to trace where the funds have been moved to. It can take up to three months for a fund to transfer from one provider to another.

You will normally receive correspondence along the way and may receive some choices and options in the new fund that you need to make decisions on.

You are never forced to retire from a retirement fund