Preservation funds in South Africa
When resigning from their jobs, members of retirement funds have the choice of:
- Transferring their assets to a preservation fund (or retirement annuity fund),
- And/or taking a lump sum withdrawal benefit,
- Some retirement funds allow members to leave their retirement savings in their retirement fund, but before you choose this option you should check to see whether it is allowed in terms of the fund's rules (if you leave your money in the fund without checking whether it is allowed, you run all sorts of risks, but in particular the risk that the fund will treat your savings as an unclaimed benefit, and you might lose the right to claim it).
This website looks at the process I, the author, went through in deciding what lump sum to take and where to invest. It shouldn't in any way be construed as being advice, as circumstances differ from individual to individual.
Choices of preservation funds and retirement annuity funds:
- Allan Gray
- Old Mutual Galaxy Preservation Fund
- Old Mutual Protektor Preservation Fund
- Old Mutual ELRAF retirement annuity fund
- Sanlam Glacier
Should I take a lump sum at withdrawal ?
Assuming you have a choice, then factors to take into account are:
- Tax on lump sum at withdrawal
- Tax on lump sum/ annuity benefits at retirement
- Net investment return if invested by myself (including the ability to save it as opposed to spend)
- Net investment return if invested in a retirement fund
- Option foregone to make a further lump sum withdrawal
There are 3 fees that may be charged for preservation fund investments (the 3 A's):
- Advisor fees, which are the fees paid for financial advice. Some charge an upfront fee (anything from 0% to 3%), and an ongoing fee up to 1% of the assets under management.
- Administrator fees (the platform fees), there is sometimes an upfront fee, and an ongoing fee. Many platforms offset their fees with rebates received from asset managers.
- Asset manager fees (fees paid for asset management). Typically asset managers no longer charge upfront fees, only an ongoign fee.