Every month, money leaves your payslip and goes towards your retirement. Your employer might be contributing too. But do you know how much is being invested for your future, where it is invested and whether you are on track?
You could be missing out on valuable employer contributions, holding investments that are too conservative for your circumstances or building retirement savings that will not provide the income you expect.
Having a company retirement fund is an excellent starting point. The important thing is understanding how to make the most of it.
What exactly is your company retirement fund?
A company retirement fund is a savings arrangement offered through your employer to help you build financial security for retirement.
Your contributions, together with any contributions from your employer, are invested on your behalf. Over time, these investments can grow through investment returns, although their value can also fall when markets perform poorly.
Your retirement fund is not simply an account where your contributions sit waiting for you to retire. It is an investment intended to help provide an income in the future.
Understanding how it works gives you the opportunity to make better decisions about your contributions, investments and long-term financial plans.
Who contributes to your retirement fund?
Retirement fund contributions usually come from two sources: you and your employer. Your contribution is deducted from your salary, while your employer contributes according to your employment agreement and the fund’s rules.
Consider someone earning R30,000 a month who contributes 5% of their salary towards retirement, with their employer contributing another 5%.
| Monthly contribution | Amount |
|---|---|
| Your contribution (5%) | R1,500 |
| Employer contribution (5%) | R1,500 |
| Total invested monthly | R3,000 |
| Total invested annually | R36,000 |
In this example, R36,000 goes towards retirement over a year, before investment returns, fees and any applicable deductions.
Your employer’s contribution is valuable because it helps build your retirement savings without requiring the entire amount to come from your own salary. However, employer contributions are not always an additional benefit on top of your total remuneration package. Some employers include them in your cost to company, while others contribute according to a separate arrangement.
Many company funds also include group risk benefits, such as life cover, disability cover or income protection. These may be paid for by you, your employer or both. The cover and conditions vary, so find out what you already have before buying additional cover.
Your employment agreement or HR department can confirm how your contributions and benefits are structured.
Are you making the most of your employer’s contributions?
One of the first things you should establish is how your employer contributes to your retirement fund.
Some employers match your contributions rand for rand, up to a specified percentage of your salary. Others contribute a fixed percentage or amount regardless of how much you contribute yourself.
If your employer matches your contributions, the amount you choose to contribute can directly affect how much is invested for your retirement.
Imagine you earn R30,000 a month and your employer matches your contributions rand for rand, up to 5% of your salary.
| You contribute 5% | You contribute 2% | |
|---|---|---|
| Your monthly contribution | R1,500 | R600 |
| Employer’s monthly contribution | R1,500 | R600 |
| Total invested monthly | R3,000 | R1,200 |
| Total invested annually | R36,000 | R14,400 |
By contributing 2% instead of 5%, you would have R1,800 less invested every month. That is R21,600 less over a year, before investment growth.
Of that difference, R10,800 is the additional amount you would have contributed yourself, and another R10,800 is the employer contribution you would forgo.
This example assumes a rand-for-rand match up to 5%. If your employer pays a fixed contribution regardless of what you contribute, reducing your own contribution would not necessarily reduce theirs.
Find out exactly how your employer contributes. Ask HR or your fund administrator whether your employer matches your contributions, pays a fixed percentage or follows another arrangement. Establish what you need to contribute to receive the full employer contribution available to you.
If you are not receiving the full contribution available, increasing your own contribution is worth considering. Weigh the effect on your monthly budget against the long-term benefit of investing more towards retirement.
Where is your retirement money invested?
Your contributions are invested to grow your savings over time. Depending on your fund’s investment strategy, your money may be spread across shares, bonds, property and cash.
Each asset class behaves differently.
- Shares offer long-term growth potential but can fluctuate significantly in the short term.
- Bonds can provide income and help balance the risks associated with shares.
- Cash is generally more stable over shorter periods, but its returns may not keep pace with inflation over the long term.
The mix of investments in your portfolio affects both your potential returns and the risks you take along the way.
Some company funds let you choose between investment portfolios, while others automatically place you in a default portfolio or use a strategy that adjusts your investments as you approach retirement.
If you have a choice, your selection can make a meaningful difference to how much you accumulate by retirement.
Choosing the right investment portfolio
Your time until retirement is an important consideration when selecting an investment portfolio, but it is not the only one.
If you are 20 years from retirement, you have more time to recover from short-term market fluctuations. A portfolio that is too conservative for your circumstances could limit your long-term growth, particularly after inflation.
If you are one year from retirement and about to start drawing an income from your savings, a portfolio heavily exposed to shares could leave you vulnerable to a market decline just when you need your money.
However, neither situation means there is one portfolio that automatically suits everyone. Your expected retirement income, other investments, planned retirement date and ability to withstand market losses all matter.
Some funds offer a life-stage or lifestyle strategy that gradually moves members into lower-volatility investments as retirement approaches. Others leave the decision to you, so confirm how your fund works rather than assuming your investments adjust automatically.
At Temple Alliance, we can help you assess whether your retirement fund’s investment selection is appropriate for your time horizon, circumstances and retirement goals.
Will your company retirement fund be enough?
Having a retirement fund does not automatically mean you will retire comfortably.
The answer depends on how much you and your employer contribute, how long your savings have to grow, how they are invested, when you retire and how long your money needs to last.
A balance that looks substantial today can still fall short of your retirement needs.
Consider R2 million. It might sound like a large amount of money, but if it needs to support you for several decades, the important question is how much income it can realistically provide.
As an illustration, withdrawing 4% of R2 million in the first year would give you R80,000 a year, or approximately R6,667 a month before tax.
That may be less than you expect.
Inflation makes the picture more complicated. If inflation averages 5% a year, you would need approximately R17,700 a month in 20 years to buy what R6,667 buys today.
Your retirement savings need to support your spending over time, not just provide a seemingly substantial balance when you stop working.
The 4% example is an illustration, not a guarantee that your savings will last throughout retirement. The appropriate withdrawal rate depends on factors such as investment returns, inflation, fees, your spending patterns and how long you need the money to last.
This is why a retirement projection is so useful. It estimates what your savings could grow to by retirement and the income they might provide. You can then compare that estimate with the income you expect to need.
A projection is not a guarantee, and it should be reviewed as your circumstances and investment markets change.
If a projection shows a shortfall, you may be able to address it by:
- Increasing your retirement contributions.
- Building additional retirement savings or other investments.
- Adjusting your planned retirement age.
- Reviewing your expected retirement expenses.
The earlier you identify a potential shortfall, the more time you have to do something about it.
What should you check on your retirement fund statement?
Your retirement fund statement is one of the most useful tools for understanding how your savings are progressing. When it arrives, do not simply look at the balance and file it away.
Check the following:
- Current fund value: How much has accumulated so far?
- Your contributions: Are the correct amounts being deducted and allocated to your fund?
- Employer contributions: Is your employer paying the amount specified in your employment agreement and the fund’s rules?
- Investment performance: How has your portfolio performed over time, and how does it compare with an appropriate benchmark and its investment objective?
- Group risk benefits: What life, disability or income protection cover do you have, and what does it cost?
- Projected retirement benefits: What income could your savings provide, and how does that compare with what you are likely to need?
- Beneficiary nomination: Are your nominated beneficiaries up to date?
That last point deserves particular attention.
If you die while you have money in a South African retirement fund, the death benefit is subject to specific legal rules. It is not necessarily distributed according to your Will or paid automatically to the people named in your beneficiary nomination.
Under South African law, retirement fund trustees must consider eligible dependants and nominees when allocating death benefits. Your nomination communicates your wishes, but it does not override the applicable legal requirements.
Review your nomination after major life changes, such as marriage, divorce or the birth of a child, and ask your fund administrator how death benefits are handled.
What happens when you resign?
Changing jobs is a common point at which people make decisions about their retirement savings, sometimes without fully understanding the consequences.
Leaving your employer does not automatically mean you should withdraw your retirement savings in cash. Depending on your circumstances and the available options, you may be able to remain in your existing fund as a paid-up member, transfer your savings to your new employer’s fund or move them to a preservation fund.
Since South Africa’s two-pot retirement system began on 1 September 2024, retirement savings are divided into three components, each with different rules.
Vested component
This contains your pre-September 2024 retirement savings, adjusted for the amount transferred into your savings component when the system began. The existing withdrawal rules continue to apply to the vested component, subject to the relevant legislation and fund rules.
Savings component
This contains the amount allocated to accessible savings under the two-pot system, including the initial amount transferred into it. While remaining a member of a fund, you can generally make one savings withdrawal per tax year, subject to the applicable requirements and the minimum withdrawal amount of R2,000. Withdrawals are taxed at your applicable marginal income tax rate, and the amount you receive may be reduced by tax.
Retirement component
This contains the portion of contributions allocated to retirement under the two-pot system. It is generally preserved until retirement and cannot be withdrawn in cash simply because you resign. It must be transferred to another qualifying fund if you leave your employment before retirement, subject to the applicable rules.
The options available to you depend on the component, your fund and the circumstances under which you leave. Before making a decision, ask your fund administrator to explain your options and the tax implications.
Taking money out reduces the amount available to support you in retirement and removes the opportunity for that money to earn future investment returns.
Leaving your job does not mean you should automatically cash out your retirement savings.
The bottom line: Take an active role in your retirement
Your company retirement fund is an important part of your long-term financial security, particularly when your employer contributes towards it. But simply belonging to a fund is not enough. You need to understand how it works and whether it is helping you reach your retirement goals.
Start by checking your contribution rate and whether you are receiving the full employer contribution available to you. Review your latest statement, assess your investment selection and find out whether your projected retirement income is likely to meet your needs.
If your workplace fund is unlikely to provide everything you need, additional retirement savings or other investments could form part of a broader financial plan.
At Temple Alliance, we can help you review your retirement savings, assess whether you are on track and evaluate whether your investment selection suits your time horizon and goals. We can also help you identify potential shortfalls and consider what steps you could take to address them.
You do not have to wait until retirement is approaching to find out whether you are on track
Book a consultation with Temple Alliance to understand where you stand today and what you can do to prepare for tomorrow.
Book a consultationTemple Alliance (Pty) Ltd is an authorised Financial Services Provider (FSP No. 45325). This article is intended for general educational purposes only and does not constitute financial, investment, tax or legal advice. The information is not a substitute for advice tailored to your individual circumstances. Retirement fund rules, tax treatment and available benefits depend on the applicable legislation and the specific fund. Consult a qualified financial adviser before making decisions about your retirement savings.