UCTRF Retirees’ Workshop Yvette Harris | Somila Putuma - Simeka Consultants & Actuaries 26 September 2019
FAIS Acknowledgement & Advice Disclaimer • Yvette Harris and Somila Putuma are the Benefit Consultants, employed at Simeka Consultants & Actuaries • Simeka Consultants & Actuaries is a licensed financial services provider: FAIS Reference Number : 13900 • Factual information and not advice! Any guidance, opinions or proposals expressed by the presenters are for information purposes only and are not intended to be advice as contemplated in the FAIS Act, 37 of 2002
Agenda • Introduction • Annuity Estimates Retirement benefit • Deferring your retirement from the UCTRF • Retiring now • Life and Living Annuities • The UCTRF Living Annuity • • Pension payment dates • State old age pension • Group Life conversion option • Financial Advice • Questions
Introduction • UCTRF is a Provident Fund • Provident Funds that enable members to elect an annuity must have an annuity strategy that is suitable for its members • Members must be given access to retirement benefits counselling at least 3 months before normal retirement date • Retirement Options Guide Default regulations • Annuity Illustrative Estimate Statement became effective 1 March 2019 • Retirees’ Workshop • UCTRF office • The UCTRF has gone a step further and is also introducing an Advisory service • Gradige Mahura Investments • Paid for by UCTRF
Annuity Estimates • Annuity Illustrative Estimate issued in September 2019 • Based on retirement benefit value as at 30 June 2019 • Estimates excludes 1/3 max R500 000 and AIPF tax free portion • 31 December 2019 value will include: Your Retirement Benefit • Contributions from July to December 2019 • Investment returns (positive or negative) • Transfers in (if applicable) • This is the final amount used for your pension
Annuity Estimates • Annuity Illustrative Estimate issued in September 2019 • Based on retirement benefit value as at 30 June 2019 • Estimates excludes 1/3 max R500 000 and AIPF tax free portion • 31 December 2019 value will include: Your Retirement Benefit • Contributions from July to December 2019 • Investment returns (positive or negative) • Transfers in (if applicable) • This is the final amount used for your pension
Annuity Estimates Should I wait to draw my pension? Defer Retire OR Retire NOW Retire from the UCTRF later Important: Although you have to retire from service by your normal retirement date, you can choose when you want to retire from the UCTRF
Annuity Estimates • Do not need your retirement fund income immediately • Accumulated savings to sustain yourself for a period Defer • You are embarking on another career • Leave your money in the UCTRF Important: Retire from the UCTRF • The full retirement benefit has to be left in the UCTRF later • Same investment choices and switching as active member • No additional contributions or transfers in • No Risk Benefits (death or disability) • Admin fee payable • Access to UCTRF office and all communication STAY IN TOUCH platforms • Your can retire at any point - it is your decision!
Annuity Estimates R 1 000 000 Defer Age Average Pension Amount 55 R 4 650 60 R 7 970 Retire from the UCTRF later 65 R 13 897 70 R 24 829 Investment return assumption of CPI plus 4%
Annuity Estimates Other questions you may have? Retire How much cash should you take? What type of pension (annuity) should you buy? Retire NOW From whom?
Annuity Estimates Retire How much cash should you take? • full benefit in cash • part cash and part pension (annuity) Retire NOW • full benefit to purchase a pension (annuity) Important : • The more cash you take the smaller your pension • Once your decision is made you cannot take cash later
Annuity Estimates How will my cash portion be taxed? Retire Lump Sum tax table Taxable income (R) Rate of tax (R) 0 – 500 000 0% of taxable income 500 001 - 700 000 18% of taxable income above 500 000 700 001 – 1 050 000 36 000 + 27% of taxable income above 700 000 Retire NOW 1 050 001 and above 130 500 + 36% of taxable income above 1 050 000 Annuity Estimates assumptions: • 1/3 of the retirement fund benefit subject to R500 000 tax free cap and • AIPF value assumed taken in cash
Annuity Estimates What type of pension should I buy? Living Annuity Life Annuity Retire VS Retire NOW
Annuity Estimates What type of pension should I buy? Life Annuity Living annuity • Bank account • Insurance policy • You could outlive your savings • Income as long as you live • Withdraw money each month until it is gone • Guarantee periods and spouse’s pension options • Can be inherited if savings are available • Cannot be inherited • Can change later • Cant change your mind
Annuity Estimates Life Annuity A Life Annuity is Trustee endorsed ‘default’ annuity for the average UCTRF member • However, ‘default’ is not automatic • Members must ‘opt-in’ or choose the annuity that is most appropriate for their needs Annuity Estimates and Advisor to assist in decision making • UCTRF negotiated estimates obtained in respect of • Inflation-linked and With profit life annuities from five Insurers • Used bulk buying power pricing with no commissions payable – very competitive • Pre-determined parameters and assumptions – may not be suitable for you – Advisor facility to obtain alternative estimate allowing for your specific circumstances Important : • Financial strength of insurer who carries investment risk to pay pension for life
Annuity Estimates Life Annuity Factors taken into account in obtaining the estimates Amount available Retirement benefit available for the pension (already explained) Gender Females higher life expectancy than males resulting in a smaller starting pension Age How long you are expected to live and be paid a pension Guarantee period 5 years i.e. 100% of the pension will be paid for the first 5 years even if you pass away during this period Joint Life / Spouse’s 75% of your pension will be paid to your spouse should you pass away after 5 years pension (Female spouse assumed 3 years younger if actual DOB has been provided) Future increases According to the type of annuity - either inflation linked or a with profit annuity
Annuity Estimates Life Annuity Inflation Linked Life Annuity Quotes : R 1 000 000 Momentum Sanlam Liberty Initial monthly pension R6 976 R5 741 R4 160 (before tax and any other deductions) Increases Advantages Disadvantages • • Pension increases are based on the inflation rate Pension keeps up with inflation and is Pension is expensive, because increases for the previous year. protected against increases in the cost of are linked to inflation. living. • Pension increases can be low (even 0%) if Guaranteed to keep up with inflation. the inflation rate is low (or 0%).
Annuity Estimates Life Annuity With Profit Life Annuity Quotes: R 1 000 000 Old Mutual Momentum Just Initial monthly pension (before tax and any R6 443 R6 976 R7 015 other deductions) Increases Advantages Disadvantages • • Allows you to share (with the insurance Starting pension amount is guaranteed. You could have a 0% pension increase if company) in the investment profits made on your investment returns are poor. • Increases can be good if investment pension portfolio. • performance is good. Pension may not keep up with inflation. Pension increases are determined by the insurance company, based on how your money in your investment portfolios grew.
Annuity Estimates Enhanced Life Annuity Health Lifestyle Qualification process: • Telephonic underwriting • 8 high level questions • Feedback = potential enhanced annuity • INCREASE IN STARTING PENSION • Never result in a decrease in starting pension
Annuity Estimates Living Annuity You control how much you put in Based on the amount you saved up to retirement, less A Bank Account any cash lump sum taken You control how it is invested Determined by the investment portfolio choice you make You control how much you take out Drawdown – size of your pension you choose annually 2.5% - 17.5% You need to manage it! No Guarantees – your capital may run out!
Living annuity Investment Retirement Returns Capital (Positive) Living Annuity Account Investment returns Drawdown = (negative) Pension Fees You need to manage it! No Guarantees – your capital may run out!
The UCTRF Living Annuity While not the ‘default’, the UCTRF has an in-fund Living Annuity • You remain a member of the UCTRF • Have the same investment choices after retirement as before • Very cost effective • Maximum recommended drawdowns You need to manage it! No Guarantees – your capital may run out!
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