Is it really worth having a pension/provident fund?

[koeks525]

Hi Everyone,

So I just started working this year, and the company I work at makes it compulsory for employees to have medical aid and a pension fund. This is all cool, I have no issues with that. Over the weekend, I thought now is the time I should have a look at the pension, and noticed the total reflected in there does not add up to the monthly contributions taken from my remuneration package. Upon skimming through everything, it looks like my pension fund has been losing money (I saw one of the documents mention approx. 1K was lost in disinvestment's). I am on Alexander Forbes Pension Fund.

I know my question sounds a bit silly, but, is it really worth having pension/provident fund, when your provider gets to play with your monthly contributions and you end up losing money [at least that is how I see it]? I am still new to all this, so I was a bit shocked. What alternates would work?

 

[ArmatageShanks]

YES

 

[supersunbird]

Will try to reply later, gots to work.

 

[Jola]

Hmmm, not so sure, but it depends on your financial discipline.

The tax benefits on pension/RA's are negated by high fees and poor government regulation (prescribed assets, limited offshore investment, etc), as well as government incompetence in the form of poor economic growth and consequent currency collapse.

If you can discipline yourself to invest 15% of your gross income into proper after-tax investments, as well as sufficient offshore investments, and to never touch these until retirement, then that will be better.

But few people have the discipline to do that.

 

[RonSwanson]

Alexander Forbes Pension Fund.

There's part of the problem.

 

[Cius]

The nature of equity based investment funds is that there are good and bad times. My pension also went down the last 3 years, but before that I sometimes had 25+ growth years. You have to save, or you end up like so many unable to retire and working into your later years in a horrible race between money and health. Eventually you become a burden on your kids.

Pension funds should be compulsory, and you should never cash it out if possible. That being said its complex as country risk is a thing. I know people who diligently saved for decades only to lose it all as they did so in Zim prior to the collapse. I know a lot more people these days are taking the tax hit by not investing in local pensions so that they can get the money offshore. Still, overall its a good idea. Pay it.

 

[I.am.Sam]

i dont have one

i will work till im dead

 

[TofuMofu]

Just because it's down now, doesn't mean it will always be down.

You NEED to have something for your retirement. State pension won't be enough.

 

[ProfA]

i dont have one

i will work till im dead

I get not voluntarily having one as I agree with the OP. But no private savings either for your old age?

 

[bchip]

Hi Everyone,
...
I am on Alexander Forbes Pension Fund.

AF is notorious for poor performance. During the bull markets of 2002-2007
they returned around 3% per annum in a high equity fund.
It wouldve been better had you put the money in a money market.

Pension fund is important for most people, but going to AF is a different story.

 

[3WA]

Now is not an entirely bad time to build up your pension if you’re going to stay in South Africa. Either our economy improves and it will go up, in which case you’ll get richer, or our economy tanks and it will go down, in which case there'll be nothing in the country to spend money on anyways.

 

[Tman*]

Is it really worth having a pension/provident fund?

Your question should rather be: "Is it worth it to save for my retirement"

And the question to that is a conclusive yes.

Some may argue that a pension/provident/retirement fund is the magical vehicle that will ensure you retire comfortably. I say its a scam. You basically pay someone else in the hope that they know what they are doing, and if they don't there is no consequence what so ever. Ask yourself, how many people do you know that retired comfortably from an pension/provident/retirement fund? I know ZERO.

Instead of relying on someone else, and paying them exuberant fees, commissions, etc for NO guarantees, rather educate yourself and save in an retirement vehicle where you can be in charge. You can systematically invest in Shares, property, your own business etc etc, just make sure you do actually save.

 

[backstreetboy]

Your question should rather be: "Is it worth it to save for my retirement"

And the question to that is a conclusive yes.

Some may argue that a pension/provident/retirement fund is the magical vehicle that will ensure you retire comfortably. I say its a scam. You basically pay someone else in the hope that they know what they are doing, and if they don't there is no consequence what so ever. Ask yourself, how many people do you know that retired comfortably from an pension/provident/retirement fund? I know ZERO.

Instead of relying on someone else, and paying them exuberant fees, commissions, etc for NO guarantees, rather educate yourself and save in an retirement vehicle where you can be in charge. You can systematically invest in Shares, property, your own business etc etc, just make sure you do actually save.

The new unit trust based RA's haven't been around that long yet so understandable. Can't compare them to the old policy based RA's... Night and day difference.

 

[Splinter]

Your question should rather be: "Is it worth it to save for my retirement"

And the question to that is a conclusive yes.

Some may argue that a pension/provident/retirement fund is the magical vehicle that will ensure you retire comfortably. I say its a scam. You basically pay someone else in the hope that they know what they are doing, and if they don't there is no consequence what so ever. Ask yourself, how many people do you know that retired comfortably from an pension/provident/retirement fund? I know ZERO.

Instead of relying on someone else, and paying them exuberant fees, commissions, etc for NO guarantees, rather educate yourself and save in an retirement vehicle where you can be in charge. You can systematically invest in Shares, property, your own business etc etc, just make sure you do actually save.

Sigh. How many times do we have to go through such debates...

Shortly and sweetly - for the average working man, you are wrong, sir.

 

[lkswan747]

Keep your pension fund or else take out retirement annuities. The government does not look after you in your old age (unless you can live on R 1,600,00/month). I diligently contributed to my RA's and provident fund and thanks to my discipline, was able to retire at the age of 55. I encourage any youngster to save as much as they can from the day they start earning a salary.

 

[supersunbird]

The answer is mostly yes. Big tax benefit that's pretty hard to beat with discretionary investments, the discretionary investments, are on the back foot from the start.

I think your issue might be the Alexander Forbes part, I have heard they are expensive. Your employer might allow you to contribute a lower percentage to the pension fund than you currently do, my employer allows from 5%, up to 27.5% in 2.5% increments.

If you can contribute the lowest percentage to the work fund, you can then privately contribute the difference to an Retirement Annuity (RA) of your choice invested where and in what you want (within the Reg 28 limits). A "negative" of an RA is that your money is less accessibly, if you are retrenched or whatever, you cannot access is like a Pension/Provident Fund for example, but some view that as a positive as well, in that it protects you from yourself.

Here are my 10X returns for this year so far, and since inception.

Returns since 1 Jan 2019 to 4 Aug 2019:


Returns since 1 Jan 2013 to 4 Aug 2019

 

[krycor]

Yes and no.

So i'm sure supersunbird will comeback some details on this but basically as people mentioned above the answer is depends on what you asking.

1. Is it worth saving for retirement - Yes, yes it is and very important. Ideally, in a perfect world you would want to save 15-30% of income especially if young as later in life your costs increase and then backing off will be easier as you made a lot of headway.

2. Is it worth saving in a state structured / governed retirement investment vehicle - No, the risk may be too high.. but if it is your only vehicle then yes. This is where it gets a bit murky as this depends heavily on maths.. but the point here is
a. The state limitations on where you save via regulation 28 & the returns on that vs tax deductions has to be weighed up (once in an RA you cannot take it out until retirement or financial emigration).
b. Returns by directly investing via eft may great.. but there are tax considerations to take into account as well as timing.. i.e. we at the end of the 10+yr bull run(longest) in the US.. its gonna be brutal when it hits the fan and debate about the next bull run as their reserve bank is technically funding each run since 2000s (And you though Sa gov was only one getting directly involved in business.. their stock market is entirely propped up).
c. Government has made a lot of noise about prescribed assets.. this impacts RA/Pension schemes.

 

[Scooby_Doo]

The answer is mostly yes. Big tax benefit that's pretty hard to beat with discretionary investments, the discretionary investments, are on the back foot from the start.

I think your issue might be the Alexander Forbes part, I have heard they are expensive. Your employer might allow you to contribute a lower percentage to the pension fund than you currently do, my employer allows from 5%, up to 27.5% in 2.5% increments.

If you can contribute the lowest percentage to the work fund, you can then privately contribute the difference to an Retirement Annuity (RA) of your choice invested where and in what you want (within the Reg 28 limits). A "negative" of an RA is that your money is less accessibly, if you are retrenched or whatever, you cannot access is like a Pension/Provident Fund for example, but some view that as a positive as well, in that it protects you from yourself.

Here are my 10X returns for this year so far, and since inception.

Returns since 1 Jan 2019 to 4 Aug 2019:
View attachment 693103

Returns since 1 Jan 2013 to 4 Aug 2019
View attachment 693105

6.4%?

Eish...

 

[krycor]

6.4%?

Eish...

Which is why if i was starting out right now i'd be hesitant to put everything in Ra (albeit due for a run.. well assume Sa doesn't score an own goal as we did in 2008/9).

I'd say ideally you need a mix of EFT and RA savings to cater for everything coming.. but keep in mind passive investment may be in for trouble when things hit the fan. So investing right now is gonna be painful either way.

 

[TofuMofu]

6.4%?

Eish...

The economy is screwed mate. Have you not seen?