How to choose the best pension scheme

By Staff Writer
According to research produced by Sanlam investors are usually pushed into making snap selections on their company’s retirement fund.

Often employees are forced to make a choice within a matter of hours, which is not enough time to make the right choice.
 
Karin Muller, head of Sanlam’s growth market solutions, says: 
 
“85% of people we spoke to were asked to return the forms for their retirement plan within a week, with nearly 19% being given only a few hours. So joining the retirement fund is positioned very much as a quick form-filling exercise.

But in fact this is a major decision that could well mean the difference between enjoying a financially secure future, or joining the 51% of SA’s pensioners who are unable to make ends meet.”
 
Choose the option that’s right for you
 
Muller said it is critical that one’s retirement planning be done within the context of your full financial outlook. 

“There are a range of options on most retirement funds and the right choice for each person will depend on many things, like whether they are single or married, whether they have kids and whether they plan to retire early or not. Ideally you should seek professional financial advice before making any big financial decision and retirement is no exception.

You need to have a full needs analysis conducted in order to ensure the decisions you make have the right long-term impact for you and your family,” says Muller.
 
Paul Roelofse, consumer advocate for the Financial Planning Institute of Southern Africa, said retirement options are sometimes very complex and technical to someone who isn’t an expert on the subject.
 
“Choosing a retirement option depends on your circumstances but because there are so many options out there, people become overwhelmed. When choosing a retirement option, always look at your retirement as money that should last you as long as possible. It is important to take inflation into account when choosing a retirement option,” he said.
 
Guidelines to consider when choosing a retirement plan:
 
1) Muller says you should not allow a new employer to rush you into signing retirement forms.  “Insist on taking them away and reviewing them properly in your own time before signing.” 
 
2) Get expert advice. Consult with a financial advisor you know and trust. Roelofse advised that you choose an advisor who specialises in retirement as opposed to a one who specialises in specific products. 
 
3) Take time to consider how much you’ll contribute and where your money will be invested. “You shouldn’t rush into this but rather work through your needs carefully and make decisions in collaboration with a financial advisor,” says Muller.
 
4) Don’t become one of the many members of retirement funds who never review their retirement plan after initially signing up. Be proactive and take a look at your pension provision regularly to see that it is keeping pace with your changing life circumstances. 
 
5) Budget for more than your company’s retirement scheme
 
According to Sasfin financial consultant, Gavin Came, taking out a pension scheme at work is one of the conditions of employment but it’s usually not enough.
 
“The first thing you should look at is your life insurance coverage. Your pension scheme usually covers life insurance, disability and your pension fund. The first thing you should consider is the amount of life insurance cover that you need. It is usually three times your salary,” explains Came. He adds that as a rule of thumb, your life insurance should be ten times your salary when you have a family with two children.
 
When it comes to your pension you should also save some money separately from your company pension. Came believes that if your company contributes between eight and nine percent towards your retirement fund, you should be saving an extra 15% for retirement.
 
Came says that should you resign, one of the best options is to transfer your money into a preservation fund where your money is kept separately from the retirement fund at your new job. 
The added benefit is that unlike the retirement annuity, you can have access to your money before you turn 55 years old if you invest in this type of fund.

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