Is it really worth having a pension/provident fund?

[supersunbird]

I would love to see his calculations. I bet he took his total contributions and chose some decent investment return somewhere to work out an imagined total.

What a lot of people don't seem to get is that your full contribution doesn't get invested - a portion may be spent on risk cover. Which can be death cover, disability cover, or both. And yes, a portion for admin expenses. But that's small.

FTFY
What goes to 10x goes there, the risk cover goes to that risk cover provider, at my employer.

Also, the first part is correct, hindsight is 20/20 and you can cherry pick as you want.

 

[Splinter]

Basically deferment, you have to pay tax eventually. And then you have to use a fund that is compliant with Regulation 28 of the pension funds act (and whatever else the govt throws at it). The difference is quite a few percentage points -- for example, compare Coronation's Balanced Plus fund (14.2%) with Coronation's Top 20 fund (17.3%), the latter not suffering from pension fund regulation.

It's all very well cherry picking returns between Reg 28 compliant funds and general investments, but I agree there is an argument to be made that higher returns can be earned. With associated increased risk of course.

Although the tax is only deferred, you must bear in mind that in the 30 odd years of your working career, you will be earning income on the tax portion that you haven't paid for those 30 years.

 

[RonSwanson]

Yeah, but by the time you pay tax on your RA, you have less annual earning so much lower brackets and marginal rates. I'd rather earn 14% on R100k than 17% on R100k after 35% tax.

At some point, you will need to evaluate what you will actually get out vs what is on your statement today. In addition, there's the threat of government making changes to the pensions fund act, lot of rumbling about this recently (someone needs to fund SOE bailouts). This is the point alluded to by the OP. And then, there's the freedom and flexibility, being able to do what you want with your investments, not being dictated to by government. These eat away at the advantage of the marginal tax deferment, and makes people reconsider options.

 

[Splinter]

FTFY
What goes to 10x goes there, the risk cover goes to that risk cover provider, at my employer.

Also, the first part is correct, hindsight is 20/20 and you can cherry pick as you want.

Nope. Your ER and you contribute to the fund together, but the ER portion is in essence part of your salary package. Thus the risk portion is still part of your total contribution.

 

[Splinter]

Yeah, but by the time you pay tax on your RA, you have less annual earning so much lower brackets and marginal rates. I'd rather earn 14% on R100k than 17% on R100k after 35% tax.

We speak the same language.

 

[3WA]

That's assuming there isn't a money grab and tax rates for pensioners aren't increased.

I'm banking on the idea that if they're going to wreck the country, they'll do it before I retire. Then I'll go live on the beach somewhere eating fish and seals and brewing liquor from seaweed.

Or drug dealing.

 

[Splinter]

At some point, you will need to evaluate what you will actually get out vs what is on your statement today. In addition, there's the threat of government making changes to the pensions fund act, lot of rumbling about this recently (someone needs to fund SOE bailouts). This is the point alluded to by the OP. And then, there's the freedom and flexibility, being able to do what you want with your investments, not being dictated to by government. These eat away at the advantage of the marginal tax deferment, and makes people reconsider options.

Perhaps, but a well run fund will have obtained investment advice before deciding on what investments it offers to members. And constantly reviews this.

You also get funds that offer members a wide choice as to where they would elect to invest.

And the average man on the street hasn't a clue as to what investment to go for.

 

[JayM]

I'm banking on the idea that if they're going to wreck the country, they'll do it before I retire. Then I'll go live on the beach somewhere eating fish and seals and brewing liquor from seaweed.

Or drug dealing.

Solid plan.

 

[RonSwanson]

It's all very well cherry picking returns between Reg 28 compliant funds and general investments, but I agree there is an argument to be made that higher returns can be earned. With associated increased risk of course.

Although the tax is only deferred, you must bear in mind that in the 30 odd years of your working career, you will be earning income on the tax portion that you haven't paid for those 30 years.

For someone that has 10 to 20 years still to work, the higher risk may be enitirely acceptable. Not all here are retiring in the next 3 years.

 

[RonSwanson]

Perhaps, but a well run fund will have obtained investment advice before deciding on what investments it offers to members. And constantly reviews this.

You also get funds that offer members a wide choice as to where they would elect to invest.

And the average man on the street hasn't a clue as to what investment to go for.

Sure, not all people educate themselves and are up to speed with the latest swings in markets and economies, but some do, and I would guess that those who are asking the same questions as the OP do not fall into this group.

Edit: this is something that needs to be encouraged, not discouraged.

 

[deweyzeph]

Do yourselves a favour and move as much of your savings over to an offshore currency account while you still can. When the rand eventually tanks (and it will), and the government needs an IMF bailout (it will), and inflation starts making Zimbabwe and Venezuela jealous, you will be extremely grateful that you've got a few thousand pounds or dollars stashed away overseas. With capital flight on the increase it's only a matter of time before the SARB starts putting severe restrictions on how much money individuals can move out of the country. With the situation our government is getting us in it doesn't really matter whether your money grows or not, your primary concern should be to protect your assets and cash from severe inflation, and the depreciation of the rand.

 

[Splinter]

For someone that has 10 to 20 years still to work, the higher risk may be enitirely acceptable. Not all here are retiring in the next 3 years.

And if they are working, they are likely doing so as a salaried individual. There is a reason most large companies have a compulsory retirement fund. It's actually a benefit to the employee.

PS - who is talking about retiring in 3 years?

 

[Splinter]

Sure, not all people educate themselves and are up to speed with the latest swings in markets and economies, but some do, and I would guess that those who are asking the same questions as the OP do not fall into this group.

Edit: this is something that needs to be encouraged, not discouraged.

No, it's not "not all people"; it's ""most people. And I would say the OP does fall into this group.


And of course education and self-knowledge needs to be encouraged. Then again, the investments that most funds are invested in are managed by folks who have dedicated their entire education and lives to getting ""up to speed with the latest swings in markets and economies".

 

[zerocool2009]

I'm banking on the idea that if they're going to wreck the country, they'll do it before I retire. Then I'll go live on the beach somewhere eating fish and seals and brewing liquor from seaweed.

Or drug dealing.

Watch the move "the beach bum" ..... now that is the life !

 

[IT_Steven]

Do yourselves a favour and move as much of your savings over to an offshore currency account while you still can. When the rand eventually tanks (and it will), and the government needs an IMF bailout (it will), and inflation starts making Zimbabwe and Venezuela jealous, you will be extremely grateful that you've got a few thousand pounds or dollars stashed away overseas. With capital flight on the increase it's only a matter of time before the SARB starts putting severe restrictions on how much money individuals can move out of the country. With the situation our government is getting us in it doesn't really matter whether your money grows or not, your primary concern should be to protect your assets and cash from severe inflation, and the depreciation of the rand.

+1

Reading the rest of this thread like "which country do these people live in?".

 

[RonSwanson]

And if they are working, they are likely doing so as a salaried individual. There is a reason most large companies have a compulsory retirement fund. It's actually a benefit to the employee.

PS - who is talking about retiring in 3 years?

Compulsory is the problem. The dweebs that run these funds are BEE and AA, the deal makers are the same, and all clients suffer under shite performance. Like Alexander Forbes. I wouldn't piss on them if they were on fire.

 

[RonSwanson]

No, it's not "not all people"; it's ""most people. And I would say the OP does fall into this group.


And of course education and self-knowledge needs to be encouraged. Then again, the investments that most funds are invested in are managed by folks who have dedicated their entire education and lives to getting ""up to speed with the latest swings in markets and economies".

So we agree, useless pension / providend fungus agreements need to be revised.

 

[Splinter]

Compulsory is the problem. The dweebs that run these funds are BEE and AA, the deal makers are the same, and all clients suffer under shite performance. Like Alexander Forbes. I wouldn't piss on them if they were on fire.

While I wouldn't disagree with that which you named, you are incorrect as to who runs all funds.

Again, a well run fund is, well, well run. The Management Board can negotiate lower investment fees, actually.

What is your experience that makes you so anti/bitter?

 

[Splinter]

So we agree, useless pension / providend fungus agreements need to be revised.

We certainly do not agree.

Edit: How exactly did you come to the conclusion "we agree" on the post of mine you quoted?

 

[RonSwanson]

While I wouldn't disagree with that which you named, you are incorrect as to who runs all funds.

Again, a well run fund is, well, well run. The Management Board can negotiate lower investment fees, actually.

What is your experience that makes you so anti/bitter?

Compulsory arrangements, where BEE / AA pension fund partners such as Alexander Fukyous are roped in, holding a whole company ransom to their useless performance.