Pension Fund vs Retirement Annuity

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pug306

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Good morning

Is there any difference between a pension fund and a retirement annuity? If there is/are, can one transfer from a retirement annuity to a pension fund?

A few years ago, when I was still young and uninformed, I signed up for a retirement annuity with PPS/Sanlam with a fixed annual growth of 15%. Now because of changing circumstances, I want to stop contributing to the annuity until I am ready to continue again. I was informed that I can only stop for 3 - 12 months in total before my retirement age of 55. If I stop completely, it will be paid up and the fund will only be available after 55. If I reduce my premium, then my fund value is reduced accordingly.

Initially I thought I can adjust or stop my monthly contributions at will but now it looks like I had signed my life away. So is it because this is a retirement annuity and not a pension fund?
 
A pension fund is a company run pension scheme. A retirement annuity is a "pension scheme" for individuals.

You can do a section 14 transfer of your pension funds into a retirement annuity but I have never had someone request the opposite so to tell you the truth I am not sure if it can be done. I would think not as the rules of the two differ.

You can remove the annual increase on your Sanlam RA to prevent any further increases. You can also reduce what you are contributing on a monthly basis. Unfortunately if it is an older generation product you will be penalised for this reduction. Newer generation products from some companies only penalise you if you stop or reduce contributions in the first five years, but the older generation ones have harsher penalties and unfortunately the pension funds adjudicator, for all his bleating, never enforced the new legislation retrospectively.

Not being able to access the funds until age 55 is not a company rule but legislation. The government does not want you saving for retirement then accessing your funds and spending them all at age 40 and being reliant on them at retirement.
 
By 15% annual growth do you mean pay 15% more each year, or the savings grow at 15%... if its growing at 15% stick it out!!
 
Well, they told me I will be penalised for any reduction in premium, so it is probably it is an older generation of RA (I signed up in 2004). I'm a government employee, so there is a compulsory monthly contributions to GEPF. I know GEPF payout is abysmally small, so that why I was convinced by the financial advisor to opt for a RA as well (and for tax benefit too).

That 15% is not the growth in the fund value, it is a 15% per annum increase in contribution. I had told 2 unrelated financial advisors previously to reduce this to 10% for the past 3 years, but they have never bother to change it.
 
pug306 said:
Well, they told me I will be penalised for any reduction in premium, so it is probably it is an older generation of RA (I signed up in 2004). I'm a government employee, so there is a compulsory monthly contributions to GEPF. I know GEPF payout is abysmally small, so that why I was convinced by the financial advisor to opt for a RA as well (and for tax benefit too).

That 15% is not the growth in the fund value, it is a 15% per annum increase in contribution. I had told 2 unrelated financial advisors previously to reduce this to 10% for the past 3 years, but they have never bother to change it.
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Well there definitely are benefits to having an RA but the penalties were always a stumbling point. Who knows what the future holds and sometimes you are left with no choice but to stop contributing. As stated, improvements have been made on the newer generation products but this does not help you. There are also further changes to legislation being promulgated all the time.

Regarding the changing of the annual increase, usual business practice is for you to get an annual letter stating it is about to increase happen. It then offers you the option to communicate with the call centre if you would like it to not increase. In defence of the advisors you asked to change it, and I should not defend them if they committed to changing it, it is a ball ache for them to change if they are not the advisors on record, from a paperwork perspective. It is a lot easier for the client to just call the call centre and get it changed, which is what they could have advised you if they were not willing to make the effort.

If it is just temporary financial difficulty you find yourself in find out from them whether they have an option to just temporarily decrease your contributions without penalty. I know Liberty Life allows a client to reduce their contributions to the minimum (around R150 per month) for a period of six months until they find their feet.
 
Thanks LancelotSA for your good advice.

I think I should consider to transfer to a newer generation RA that gives me more flexibility. Unfortuantely, if I read my RA benefit statement correctly, I can be penalised for a transfer because "only the termination value of the policy(ies) will be transferred...".
 
pug306 said:
Thanks LancelotSA for your good advice.

I think I should consider to transfer to a newer generation RA that gives me more flexibility. Unfortuantely, if I read my RA benefit statement correctly, I can be penalised for a transfer because "only the termination value of the policy(ies) will be transferred...".
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Hmm that is a load of crap, if you'll mind my language. It sounds like something you could argue with the insurance ombud! You are not rescinding on your contract with Sanlam, you are merely transferring between products they offer. They will still be able to recoup the fees you had committed to from your monthly contributions. This is why the insurance industry has a bad name!
 
you can have this stopped/paid up until you can afford to pay again. there's no such thing as 3-12 months. i have had mine stopped since end of 2006 and have been told i can reinstate it now even though it was "forced" into a paid up status end of 2006 due to me going on ill health retirement and waiting for pay outs from the pension fund and no money to make any payments.
if i was you i would follow up with this and don't stop the RAF it is a benefit to you at the end of the day and will help with retirement.
 
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