As a financial journalist I often come across misinformation spread by unscrupulous financial advisers when it comes to the Government Employees Pension Fund.
Most of these untruths relate to members’ funds at retirement, as the financial advisers are hoping for the member to rather resign, take their pension money and give it to the financial adviser to manage – at a fee.
One of the common misunderstandings is around what happens to a retiree’s pension income five years after retirement.
Members are told by advisers that their pension income will come to an end five years after retirement. This is completely false and misleading information.
The GEPF is what’s known as a defined benefit fund. This essentially means that benefits are guaranteed for all members. The risk is pooled (as with any insurance product), so members who pass away earlier effectively cross-subsidise those who live longer.
As the GEPF does not pay fees or commissions, members receive a higher income than if the member had to purchase an equivalent annuity with a resignation benefit. Also, the GEPF guarantees an annual pension increase each year at 75% of inflation – this increase could be higher, if investment returns are good.
If you have more than ten years’ service, the GEPF provides a guaranteed income for life – and these days, that could mean many years after retirement. The average GEPF member who retired at age 65 is now living 19 years in retirement – or to the age of 84.
To give an example, if your GEPF pension is R20 000 a month and you live for the average 19 years post-retirement, by the time you die, the GEPF will have paid out R4.5 million in today’s value.
If a member passes away at any time during retirement, the surviving spouse receives a 50% or 75% pension for the rest of their life. If the member had only married after retirement, the new spouse would still be entitled to the spousal pension.
The five-year guarantee period
The misunderstanding relates to the five-year guarantee period. The annuity is guaranteed for 60 months after retirement. This means if the member passes away within the first five years of retirement, the beneficiaries will receive the balance of the monthly GEPF pension payments up to the end of the five-year period, paid as a lump sum.
For example, if the member died 24 months after retirement and was receiving an income of R20 000 per month, the remaining 36 months would be paid as a lump sum of R720 000 (R20 000 multiplied by 36) to your beneficiaries.
In addition, the spouse would continue to receive a monthly spouse’s pension from the first month after the member’s death. However, after five years, no funds are paid to beneficiaries apart from the spousal pension.
The only exception would be if the retiree had a minor child, who would qualify for a child pension until he or she reaches the age of 22.
The only way to leave retirement funds to other beneficiaries, such as adult children, would be to invest the gratuity you receive at retirement.
For example, if you received R500 000 as your lump-sum benefit and invested it for 20 years with an average return of 4% above inflation, it would be worth R1.1 million in today’s value.
This article is part of a member education series in partnership with the GEPF.
My mother is 61 years old and she is planning to retire at 62 years. She recently renovated her house and owes the bank around R190 000. She has worked for the govermentas a nurse for 10 years now. Will it be wise for her to retire and use the lump sum to pay off the loan or continue working until she pays off the loan in 2025. She is pretty much tired now but we are not sure if its wise to retire.
It is worth finding out what the additional years of retirement will add to her pension. If she has more than 10 years she would receive a gratuity as well as a monthly pension. There is a formula she can use to get an estimate https://www.gepf.co.za/wp-content/uploads/2023/03/GEPF-Membership-Guide.pdf.
It does make more sense to keep working and earn an income for as long as possible whilst building up her pension.
Hi Maya Thank you very much for the insightful article. I just have a single question, the GEPF being a defined fund, do they only payout the investment contributions + accumulated interest only at death or do the member’s also pay a risk benefits like death cover and dread disease?
Any death benefits are linked to the value of the pension/years of service. There is no stand alone life insurance although there is some funeral cover. Important point because a member should take out additional life cover.
You’re advise on money matters is so helpful
Thank you
Very helpful information indeed that resolved some doubts.
I mainly wanted to understand the portion that deals with the pensioner who is still blessed with lofe after 5 years on whether or not the payout continues.
Thank you for clarity
Thank you for the feedback. As you can see from the article a pensioner blessed with long life benefits as he/she receives an income for the rest of their life
Good Day Maya
Financial advise if my employer placed my funds in an unclaimed fund.
Was medically boarded the matter was ongoing from 2017.
Would I earn interest on my money.
Would I still qualify for the monthly from 2017 till current.
Should I remain on the GEPF were I would like my lump sum to remain.
How does the lump sum investment work.
You should probably check with your employer as this would be a more complex case.
My concern is, as a single member of the GEPF does it pay me to invest my funds in a living annuity of to keep it in the GEPF! Why are you not allowed to transfer your funds to a bank where you would earn a higher rate of return? Why does the GEPF say that you are only guaranteed five years on your investment when ideally they are only paying you the interest they are earning on your capital therefore the capital is still in place, 10, 20, 30 years on?
Very important to understand that a guaranteed annuity is NOT an investment. It is effectively a contract with an insurer (or this case government) to pay you a specific income for the rest of your life. They have to honour it even if you live to 110. But how it works in practice is like any insurance – it is pooled risk. Those who pass away earlier subsidize those who live longer. The average age of longevity of GEPF members is 82 years old. So work out how much income you would receive until the age of 82 from your GEPF pension. Then compare that to the income you would require until age 82 if you invested your current retirement value. Remember the income increases each year by inflation, so the investment must grow by at least inflation and still provide you with an income. I have not seen any investment that is able to do this after fees etc.
If I am 40years old and my mother was staying with my 2 kids and maintaining them and she was not married and she passed on while she was 73years old and I only received the funeral benefits what happens to the rest of her pension
After five years there is no guaranteed benefit, only if there was a spouse. The GEPF works on an insurance principle, not an investment.
My mother died after 7 years retirement,is there any money will I get?
Not likely as the guaranteed period is only for 5 years but you can ask
Thank you very much. This is very helpful,
So read what explained there above my comment question is a person works for more than 33years and the pension calculated is more than R1.3million and for the next 5years earning about R10000 and that sums up to R600 000 after 60 months then he or she dies then what happen to the remaining R700 000?
Very important to understand that a guaranteed annuity is NOT an investment. It is effectively a contract with an insurer (or this case government) to pay you a specific income for the rest of your life. They have to honour it even if you live to 110. But how it works in practice is like any insurance – it is pooled risk. Those who pass away earlier subsidize those who live longer. The average age of longevity of GEPF members is 82 years old. So work out how much income you would receive until the age of 82 and then see if the R1.3 million invested could keep up with that. Remember the income increases each year by inflation. I have not seen any investment that is able to do this.
thank for informative advice they are indeed helpful and so insightful
I would like to get a clear understanding though how much exactly would i get for a service of 15 years with a monthly salary of 30 000
Have you tried the GEPF self-service app? That may help you calculate the figure
I am retiring on the 30th of June. My employer advised me to retire then i have retired. Did I take a correct decision? I am a public servant.
Is it true that if you retire after reaching 60 years of age your salary from 61 comes from your pension
You don’t earn a salary as such, but you receive a pension which is an income paid in retirement. How much you are paid each month depends on how long you were a member of the GEPF and your salary in the last 24 months. However, if you were a member for less than ten years then you would not receive an income but a lump sum would be payable
Thank you very much for this information