Pension Or Provident Fund

Neuk_

Neuk_

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I have a choice between joining a pension or provident fund? Which and why? I understand that there are no longer the differences there used to be in terms of withdrawal upon retirement but is there anything else?
 
Got a job by the sounds of it :) congrats. Oh a provident fund is you can take out the entire amount when you retire. The pension fund pays you out a certain amount when you retired.
 
Lupus said:
Got a job by the sounds of it :) congrats. Oh a provident fund is you can take out the entire amount when you retire. The pension fund pays you out a certain amount when you retired.
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Not just as simple as that.
 
Magnum said:
Not just as simple as that.
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Probably not, but that is the simple version? The pension fund you can take out some of it, but the rest needs to be "reinvested" to allow you a % paid out monthly.
 
Lupus said:
Probably not, but that is the simple version? The pension fund you can take out some of it, but the rest needs to be "reinvested" to allow you a % paid out monthly.
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Something like this...

What’s the difference between a pension and a provident fund?​

A pension fund is a retirement fund that receives frequent contributions (usually monthly) from you and your employer. At retirement, you can access up to one third of the benefit in cash, and the remaining two thirds must be used to purchase an income annuity.

A provident fund is the same as a pension fund, but prior to 1 March 2021, it differed in that when you resigned or retired, you could take the entire sum as cash, which you’d be taxed on. You wouldn’t need to purchase an annuity. With the retirement reforms introduced from 1 March 2021, provident funds are now more similar to pension funds, and the following now applies:

  • Fund members are required to take a third of the benefit as a lump sum.
  • They must use the remaining two thirds to buy a pension that provides a monthly income.
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It sounds like the pension you can but don't have to take one third as a lump sum where the provident you have to take the lump sum, then both need to be invested in an income annuity. They are both more similar now from the sounds of it, hence my question as to which to go for and why...
 
Neuk_ said:
Something like this...



It sounds like the pension you can but don't have to take one third as a lump sum where the provident you have to take the lump sum, then both need to be invested in an income annuity. They are both more similar now from the sounds of it, hence my question as to which to go for and why...
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Generally companies go for provident funds, cause they pay half and you pay half. Though I believe pension funds now have that option as well. So uhmmm which ever I guess?
Also did you take your old pension money and re-invest it?
 
Lupus said:
Generally companies go for provident funds, cause they pay half and you pay half. Though I believe pension funds now have that option as well. So uhmmm which ever I guess?
Also did you take your old pension money and re-invest it?
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I work on a TCTC and have for years, who pays which half is largely for tax purposes, on both pension and provident funds I have been on in the past. I have primarily been on pension funds in the past though, I only have a single provident preservation fund and four pension preservation funds, I have not withdrawn a single cent from any of my retirement savings since starting work a little more than 20 years ago.
 
Neuk_ said:
I work on a TCTC and have for years, who pays which half is largely for tax purposes, on both pension and provident funds I have been on in the past. I have primarily been on pension funds in the past though, I only have a single provident preservation fund and four pension preservation funds, I have not withdrawn a single cent from any of my retirement savings since starting work a little more than 20 years ago.
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Good stuff a lot of people seem to spend that money when it is given to them.
 
From 1 March 2021, retirement benefits from provident funds will be treated in the same way as pension funds due to Retirement Reform changes.
 
Hijacking thread to ask if my understanding is right with regards to vested / non-vested :

If someone has saved for many years into a retirement fund and they have a total of R250,000 now - they may have R220,000 saved before March 2021 (vested) and R30,000 saved after March 2021. (non vested) .

They're allowed to take the full R220,000 (vested) - but only R10,000 (1/3 non vested) as a lumpsum?
The remaining R20,000 (2/3 non vested) needs to be used to buy an annunity?
And an annuity would pay a monthly fee out to you until you die (or until the R20,000 is finished)?
 
Dolby said:
Hijacking thread to ask if my understanding is right with regards to vested / non-vested :

If someone has saved for many years into a retirement fund and they have a total of R250,000 now - they may have R220,000 saved before March 2021 (vested) and R30,000 saved after March 2021. (non vested) .

They're allowed to take the full R220,000 (vested) - but only R10,000 (1/3 non vested) as a lumpsum?
The remaining R20,000 (2/3 non vested) needs to be used to buy an annunity?
And an annuity would pay a monthly fee out to you until you die (or until the R20,000 is finished)?
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Your understanding is correct, except that the R20k can also be taken as a lump sum as it falls below R125k per the de minimus rule. All subject to the applicable lump sum tax tables.
 
Magza said:
Your understanding is correct, except that the R20k can also be taken as a lump sum as it falls below R125k per the de minimus rule. All subject to the applicable lump sum tax tables.
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Ok thanks !
 
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