For Kevin and Zoe, a newlywed couple, the idea of retirement seems a bit far for them, even though the reality is that it never hurts to be over-prepared. According to South African legislation, employers are required to contribute towards parts of the pension funds of employees.
This ensures that individuals have money to see them through their retirement years once they have left the world of formal employment.
For individuals who aren’t formally employed, or those who freelance, having a retirement savings plan is essential. They can do this by investing in their own pension funds and contributing diligently on a monthly basis.
New regulations were introduced to the Pension Funds Act in March 2019.
Three key pillars were introduced to the Act, including:
Default investment portfolio
With this new regulation, member savings will automatically be invested in a default portfolio designed to be cost-effective. This applies when a member joins a defined contribution pension fund.
Default preservation and portability
The member’s benefit is automatically preserved when a member leaves employment before retirement. The member is converted to a “paid-up” member. Benefits are only paid out or transferred to another fund at the instruction of the member. It does not prevent members from being able to access their benefits once they leave service.
This assists members with managing their finances upon retirement. A board of trustees decides on the most cost-effective and appropriate strategy.
The changes South African pension funds will see in 2019 were introduced to discourage the withdrawal of benefits by members. For Kevin and Zoe, the decision to resign from employment will affect their pension funds. Should they seek other jobs, their pensions will be protected and any changes made will be at their request.