You are Here > Home > Financial Sense > Store your pension money in a preservation fund

Store your pension money in a preservation fund

Oct 8, 2013

money in jar“I am about to change company and will receive R157 000 between my pension and provident fund. After tax I should receive R130 000. I have bank loans along with my wife of about R70 000, and we also want to renovate our kitchen and bedroom. What do you suggest I do and can I invest some money in a high yielding investment ” asks Eldridge.

Maya replies: Please do not use your retirement funds to renovate the kitchen! You have no idea the value you will be destroying long term. Firstly you will be handing over R27 000 to the taxman. Considering that an investment in a high equity balanced fund should double every seven years, in twenty years’ time that tax bill would have cost you R216 000.

By transferring the funds to a preservation fund your R157 000 could be worth more than R1.2 million in twenty years’ time – that is a very expensive kitchen renovation!

It is also worth pointing out that based on the age and income you provided you should already have accumulated around R720 000 towards retirement – if these are your only retirement funds you are already falling well behind your required savings rate.

A preservation fund allows you to make one withdrawal before retirement so if you do find yourself in financial difficulty you still have a safety net. Allan Gray, Coronation, and 10X all have low-cost preservation options.

Rather preserve your money, create a financial plan to pay off your debt and start saving for that new kitchen.


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

The ‘silent’ changes affecting South Africans who are emigrating

The transition from the old emigration regime to the current regime ‒ ceasing of tax residency ‒ came with some relief. However, there were some changes that went largely unnoticed. By Lovemore Ndlovu, SARS and Exchange Control Specialist at Tax Consulting SA, and...

Vote for your GEPF trustees

The Government Employees Pension Fund (GEPF) will be holding its elections for new trustees from January to May 2022. GEPF elections are held every four years and are an opportunity for pensioners and members of the South African National Defence Force (SANDF) and...

Five ways to boost your income and financial knowledge

Angelique Ruzicka shares five ideas for how you can improve your financial knowledge and possibly boost your income. Boosting your income, especially during a pandemic, can feel nigh on impossible, especially when costs are going up and you’ve been told there’s no...

Financial tools to keep you on track in 2022

Advances in technology mean that it’s now so easy to keep track of your finances and achieve savings goals, using smartphone apps, websites, and other online financial tools, says Angelique Ruzicka. If you’re still using Excel or some other rudimentary means to keep...

Immediate access to retirement funds unlikely

Retirement reform paper calls for comment but no move on immediate access. Retirement fund members hoping to access their retirement funds for urgent financial relief will be disappointed by the retirement reform paper issued by National Treasury last month. In the...

Savvy ways to use your bonus

Many companies are cash strapped due to the impact of Covid-19, but if you are one of the lucky few who got a bonus or windfall this year, it will be tempting to spend it to celebrate surviving another tough year. However, money experts recommend being a bit cautious,...

How ‘bad timing’ affects retirees’ income

Retirees need to work with their financial advisers to carefully determine the structure, size, and affordability of their future pension withdrawals, particularly in a volatile market environment, says Jean-Pierre Matthews, product head at Matrix Fund Managers. When...

Delivery scams on the rise

Cybersecurity researchers are urging consumers to be on the lookout for delivery scams following Black Friday and Cyber Monday, and in the lead-up to the holidays. This comes after Mimecast’s threat-hunting team detected malicious emails and spoofed web pages...

Don’t be caught out by delayed premium increases

As medical schemes announce their pricing and benefits for next year, most have delayed their premium increases until later in 2022. The ability of medical schemes not to push through these increases in January is due to the significant surpluses they built up in...

Above-inflation returns for the GEPF

The Government Employees Pension Fund (GEPF) saw a significant 27.5% growth in its portfolio over the most recent financial year, bringing the total value of the fund to nearly R2.1 trillion. According to the annual financial results for the year ended 31 March 2021,...

Pin It on Pinterest

Share This