MyMoney Online

Choosing the right pension plan

You have two options when choosing a pension for when you retire one day. You either hand over your retirement fund to a product provider and let them provide a pension for you for the rest of your life, or you can choose to manage your own fund through your retirement.

Here are your two options explained:

The Life Annuity

This is a structured pension based on the amount of money you have accumulated together with your estimated life expectancy.

The product provider will offer you a pension for the rest of your life. Should you die sooner than estimated, the balance of your pension capital goes into the pool.

You can take out a guarantee on your pension for a period. The longer the period the lesser the pension. If for example, you choose 10 years, then the pension will be lower. If however you die in 8 years time, then the remaining 2 years of pension will be paid to the beneficiary you have nominated.

The Living Annuity

This pension allows you to invest in a wide choice of funds. You decide on your pension by making a choice between 2,5% and 17,5% of the value of your fund.

When you die, the investment passes onto your beneficiaries.

The big risk is drawing down a pension at a higher rate than the investment performance. If you achieve, say, a 10% return and draw down a 12% pension, then you effectively are eating into your capital which will result in your pension drying up a lot sooner.

You need to monitor your living annuity carefully, constantly assessing the returns and the percentage drawn down.

So which one should I choose?

If you are convinced that you will live longer than average, a life annuity is probably the better consideration. The guarantees on the pension need to be studied and understood before committing.

Ultimately, the life annuity provides certainty for your retirement around which you can plan more effectively. However, you essentially give the assurance company your money and compete with the statistics of life expectancy.

If you want control of your pension and are prepared to keep involved with the investment during your retirement years, then the living annuity is your better option. The pension drawn should be carefully considered along with the funds chosen. Be realistic about your expectations of returns, taking costs into account as it is the net value that matters.

Depending on your total provisions available at retirement you could consider a combination of these options.

Your choice of pension is a very important financial decision to make and you should seek advice from a professional financial planner to help you find the appropriate solution.

Listen to the audio below for more information...

Read more from Paul Roelofse at www.investforlife.co.za

Read More
3 best investments in the world right now (by Mia Kruger)

3 best investments in the world right now (by Mia Kruger)

Hot tip alert! Mia Kruger of Kruger International Asset & Wealth Management shares her stock picks of the week on The Money Show.

3 JSE shares you should invest right now (by Momentum)

3 JSE shares you should invest right now (by Momentum)

Looking for a hot tip, or three? Here’s what Momentum Head of Investments and Savings Steven Schultz is buying...

Want to withdraw from your retirement fund? You’re not (even remotely) alone…

Want to withdraw from your retirement fund? You’re not (even remotely) alone…

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

How to save before the festive season

How to save before the festive season

If you haven’t been saving for this costly event then you have four pay cheques to go to create a nest egg to help your through.

How to save for retirement when you’ve left it late

How to save for retirement when you’ve left it late

Whether you’re in your 30s, 40s or 50s; here’s how to save so you can still retire with dignity.

YOU AND YOUR BUDGET

How to balance it effectively and make better use of your hard earned income.

Popular articles
Getting to know MP, Dr Makhosi Khoza

Getting to know MP, Dr Makhosi Khoza

Dr Khoza is admired by South Africans for her role in the SABC inquiry as a ANC member of parliament.

Africa Melane reviews 'Get Out'

Africa Melane reviews 'Get Out'

Get Out is a darkly satirical horror film about racism that has become a cultural phenomenon in the United States.

Naked Scientist reveals the real cure for a hangover (and its not hot wings!)

Naked Scientist reveals the real cure for a hangover (and its not hot wings!)

Dr Chris Smith gives insights on what peaks your interest.

Sars sitting on R20 billion in VAT refunds

Sars sitting on R20 billion in VAT refunds

CEO of the Office of the Tax Ombudsman Advocate Eric Mkhawane says payments will be done on a case by case basis.

Afrikaans-speaking student res adamant "not exclusive"

Afrikaans-speaking student res adamant "not exclusive"

De Goede Hoop Koshuis coordinator insists this is not an 'apartheid' hostel and everyone is welcome if they meet the requirements.

No escaping the tax man even if you work outside SA

No escaping the tax man even if you work outside SA

Government is intending to change the way foreign income is taxed by introducing taxes to a large South African diaspora.

Workplace bullying is as real as in school playgrounds

Workplace bullying is as real as in school playgrounds

One in six people fall victim to an office bully.

Is Uber dying? Stuff’s editor explains…

Is Uber dying? Stuff’s editor explains…

High ranking employees are resigning en masse as crisis upon crisis pummel lossmaking Uber.

Spur CEO: Man's pic will be up at restaurants and he is not welcome

Spur CEO: Man's pic will be up at restaurants and he is not welcome

Spur CEO says staff aren't equipped for this kind of customer confrontation and he will consider reviewing their training manual.