Pension fund vs buying shares

shooter69

shooter69

Expert Member
Joined
Jun 4, 2012
Messages
3,438
Reaction score
983
Location
Dark Africa
Hi,

After settling some debt I have a bit of extra cash every month. My initial thought was to buy ETF's each month. But another thought just entered my mind. Why not up my Pension fund contribution?

What would the pro's and cons of this be? The aim here is to save for retirement.
 
Pros:
- You get a tax benefit of whatever you personal income tax rate is
- Growth, dividends and such not taxed (can get this in a Tax Free Saving Account as well but only for R30 000pa/R2500pm)
- money protected from yourself and creditors and can only partially be accessed at earliest age 55 (it's a con too)
- up to 33% available as a cash lumpsum when you retire, rest must go to a pension (its a con too)

Cons:
- limited in investments (like only 25% can be allocated in foreign investing instruments) to be regulation 28 compliant (but you can still have a very aggressive portfolio when young despite what some noobs think)
- only 33% available as cash lumpsum when you retire, rest must go to a pension (its a pro too)
- not accessible before age 55 (a pro too)
 
terencej said:
Hi,

After settling some debt I have a bit of extra cash every month. My initial thought was to buy ETF's each month. But another thought just entered my mind. Why not up my Pension fund contribution?

What would the pro's and cons of this be? The aim here is to save for retirement.
Click to expand...
You get to deduct up to 27.5% (max 350k) of gross annual income... If you invest money into your pension fund...

You could also move this money into an RA, there are some really good low cost options avail if the money is less than 247500 at retirement then you can withdraw the whole amount, subject to retirement withdraw tax tables...
 
Would upping my pension fund be a better or worse idea then putting the spare cash into ETF's?
 
Why not do a bit of both? How much per month do you have spare?
At least investing some money in a discretionary investment will allow you to access it if the need arises.
 
You'd be stupid to pass up on the tax benefit of retirement products. Especially if you're in a high tax bracket.

That said I'd keep a little in an EFT as well because you really can't get the money out of retirement products...and well life happens.

The only reason I can see for passing up on the tax benefit is if you don't plan to retire in ZA...then things can get complicated. Dealing with that atm...pretty much forced to go EFT. :/
 
I need to do a calculation to see what kind of tax benefit I get with my RA if I increase it. I would like to compare that to returns(avg) from ETF's in a Tax free savings account for the same amount invested each month.

I will be investing between R1000 and R1500p/m.

Will post my findings here.
 
terencej said:
Would upping my pension fund be a better or worse idea then putting the spare cash into ETF's?
Click to expand...

Do both. If you have nothing then get a small pension/RA for the tax break, then if you have more extra cash put it in to EFT's etc

Its good to have a diversified portfolio.
 
Up your Pension Fund to the 27.5% limit and use the rebate to buy ETF's in a TFSA.

Then you score both.
 
supersunbird said:
The more I contribute to my RA the less I get out in that calculator, or I'm doing something wrong lol.
Click to expand...

I only captured the following :
Salary,
Medical aid contribution,
Pension fund contribution(kept it at below 27.5%)
 
Last edited:
You must log in or register to reply here.
Back
Top
Sign up to the MyBroadband newsletter
X