P L A N N I N G F O R R E T I R E M E N T

Public Servants

RETIREMENT EXPECTATIONS DO NOT COMPARE

TO REALITY

Just Retirement Research, 2018

Among the respondents, 43% said they currently receive

an old-age grant from the SA government; 46% indicated

that they would rely on their children or grandchildren to

take care of them and 30% said they would rely on the

government to take care of them.

NO MATTER WHO WE ARE, WE ALL FACE

CERTAIN RISKS DURING RETIREMENT

1Inflation. The risk that the

purchasing power of your

income provided by the

retirement fund is eroded as

it cannot keep up with

inflation

Death. Providing for

dependants after death

requires careful planning

2Sustainable income

The aim of your retirement capital

should be to provide for you and

your spouse with a relevant

income to ensure that they have

enough capital after your death to

maintain their lifestyle

3

WHAT DOES INFLATION RISK REALLY MEAN

HOW MUCH DO YOU NEED?

Your retirement income needs to cover a wide range of expenses. These can be categorised into basic living

expenses, discretionary expenses and excess income, as shown in the retirement expense pyramid below.

Excess

income/assets.

Not needed, can be

left to the next generation

Income covering discretionary expenses.

Expenses are likely to increase with inflation,

but can be reduced or delayed, e.g. for travel &

entertainment

Income covering basic (non-discretionary) living expenses. Likely to

increase with inflation (or more) and typically cannot be reduced. For expenses

such as rent, utilities & medical cover

Do you have a

need to counter

the effect of

inflation?

Do you need to

plan for the results

of death?

NO MATTER WHO WE ARE, WE ALL HAVE UNIQUE

NEEDS DURING RETIREMENT

What are your

needs post

retirement

Guaranteed income

Capital

Growth

Legacy

*All retirees have the need to earn an income during retirement.

*The amount of income needed during retirement is determined by

personal circumstances.

*The availability of additional income sources dictates the level of

guarantee required.

A cash lump sum could be required for debt or a new venture/ financial

goal during retirement.

Unsustainable income during retirement could mean that growth in the

retirement savings are required even after retirement date.

Leaving a legacy to dependents are very important to some retirees.

NO MATTER WHO WE ARE, WE ALL HAVE TO

MAKE CERTAIN DECISIONS ABOUT RETIREMENT

Analyse your

needs post

retirement

Guaranteed income

Capital

Growth

LegacyPrioritise your needs as

these will determine the

solutions and mandate

your retirement plan

5432

TH E R EAL I TY OF R ET I R I N G I N TH E GEPF

Your pension will

increase once

per year by a

percentage as

determined by

the Fund

Retiree receives

medical aid

subsidy

(R1500 – R2300)

Accumulated

leave pay

The pension will

continue to spouse

when retiree passes

away (to a value of

either 50% or 75%)

At death there is no

capital left as a

legacy after your

spouse passes away

1

The value of

the increase

will be at least

75% of the

inflation at the

time

Capped leave ( <2003) – assume

108 capped leave

▪ R228 000 p.a.

▪ 228000 /264 = R864 p.d.

▪ 864 x 108 = R93 273 x 30%

(assume marginal tax rate)

▪ R 27 981

Sustainable

income to

maintain

lifestyle?

DE

AT

H

IN

FL

AT

IO

N

DEATH AFTER RETIRING IN THE GEPF

S P O U S E

To a value of either

50% or 75%

No choice to move

money

C H I L D R E N < 2 2

2 children: 25% each

3 children: 17.5% each

4 children: 12.5% each

5 children: 10% each

Member’s income @

R10 000 pm = R2 500

pm for child under 22

G U AR A N T E E D

P E R I O D

High mortality soon

into retirement

Remaining income

after death not

equivalent to

retirement benefit due

at retirement age

But there are options when nearing retirement

R E T I R E i n t h e

G E P F

RESIGN

“TRANSFER”

R E T I R E I N T H E

G E P F

R E S I G N

“ C AS H O U T ”

R E S I G N

“ T R AN S F E R ”

Retiring with less than 10 years

of service

- Once-off lump sum (gratuity)

- Equal to actuarial interest

Retiring with more than 10 years of

service

- Once-off lump sum (gratuity) PLUS

- A monthly pension

Gratuity can only be taken in cash –

no transfer option

Taxed at retirement scales

Monthly pension taxed at personal tax rate

BU T TH ER E AR E OPT I ON S W H EN N EAR I N G

RETI REM E N T

Cash amount paid to your bank

account

Taxed at retirement tax scales

GEPF will not reverse the transaction

Decision is final

Full resignation benefit transferred

to an approved fund

No option to take a portion in cash

Pre-1998 portion retains its tax-free status

when transferred (maximum two transfers)

Retire privately and 1/3 could be accessed

at retirement date while 2/3 must be used to

purchase a pension income

But there are options when nearing retirement

R E T I R E i n t h e

G E P F

RESIGN

“TRANSFER”R E T I R E I N T H E

G E P F

R E S I G N

“ C AS H O U T ”

R E S I G N

“ T R AN S F E R ”

Retiring with less than 10 years

of service

- Once-off lump sum (gratuity)

- Equal to actuarial interest

Retiring with more than 10 years of

service

- Once-off lump sum (gratuity) PLUS

- A monthly pension

Gratuity can only be taken in cash –

no transfer option

Taxed at retirement scales

Monthly pension taxed at personal tax rate

BU T TH ER E AR E OPT I ON S W H EN N EAR I N G

RETI REM E N T

Cash amount paid to your bank

account

Taxed at retirement tax scales

GEPF will not reverse the transaction

Decision is final

Full resignation benefit transferred

to an approved fund

No option to take a portion in cash

Pre-1998 portion retains its tax-free status

when transferred (maximum two transfers)

Retire privately and 1/3 could be accessed

at retirement date whilst 2/3 must be used

to purchase a pension income

DISCRETIONARY COMPULSORY

T H E C O N C E P T S O F D I S C R E T I O N A R Y A N D

C O M P U L S O R Y W H E N P L A N N I N G F O R

R E T I R E M E N T – W H Y T H I S M A T T E R S

When money is compulsory the income

you earn is taxable at marginal rates

(similar to your salary)

GROWTH

Interest = R 0

Capital gains = R 0

Dividend Withholding Tax = R 0

D I S C R E T I O N A RY

C O M P U L S O RY

When money is discretionary, the income taken from the investment is considered

a capital withdrawal and not taxable (similar to withdrawal from bank account)

GROWTH (INCLUDED IN TAXABLE INCOME)

Interest over:

R 23 800 <65 p.a.

R 34 500 >65 p.a.

Realised capital gains over R 40 000 p.a.

Dividend Withholding Tax @ 20%

Discretionary = after tax it

becomes your own money and

you can INVEST it

Compulsory = Savings in in a

retirement fund that must purchase

an income in terms of the law

ADDRESSING NEEDS IN THE VARIOUS OPTIONS

R E T I R E I N T H E G E P F RESIGN “CASH OUT” RESIGN “TRANSFER”

Discretionary money

available

Fulfil the need Discretionary

money available

Fulfil the need Discretionary AND

Compulsory

available

Fulfil the need

Retiring with less than 10

years of service

- Once-off lump sum

(gratuity)

Guaranteed income – invest in a

private income

Growth – grow your retirement

savings whilst drawing an income

Legacy – use to invest towards a

legacy – something to leave the

dependants

Cash amount paid

to your bank

account

Taxed at

retirement tax

scales. Not a tax

efficient option

Only if an

immediate capital

amount is needed

Use the rest

Guaranteed income - invest in

a private income

Growth – grow your retirement

savings whilst drawing an

income

Legacy – use to invest

towards a legacy – something

to leave the dependants

Full resignation

benefit transferred

to an approved

fund

Capital - At

retirement 1/3

capital available

as cash but

taxable at

retirement tax

scale.

2/3 retirement

benefit to a

compulsory

income

This can be invested to

supply medical aid subsidy

and short term financial goals

Capital – grow the gratuity in

an investment to provide for a

venture or financial goal

Grow to supplement income

at a later stage to counter

inflation risk

Legacy – use to invest and

grow a legacy

Guaranteed income - invest

in a private income

Retiring with more than

10 years of service

- Once-off lump sum

(gratuity) PLUS

- A monthly pension

Top up monthly pension – invest

in a private income

Capital – grow the gratuity in an

investment to provide for a

venture or financial goal

Legacy – use to invest towards a

legacy – something to leave the

dependants

A W O R D O F W A R N I N G A G A I N S T U S I N G Y O U R

R E T I R E M E N T S A V I N G S T O O S O O N F O R

C A P I T A L E X P E N S E S

This scenario shows the

impact of withdrawing your

retirement savings. By

withdrawing R261 972,

Thembi has R1 million less at

retirement, which translates

into approximately R4,500

less income per month.

W H Y D O M EM BER S L EAVE TH E GEPF ?

CONSI DE R THE I M PL I C AT I O N S … . .

Main reason is to leave inheritance for

dependants – legacy for the next

generation.

More flexibility when structuring

income.

Clients say:

CONTROL: It’s my money

POTENTIAL: The market will perform

LIFE EXPECTANCY: I’ll never get to 90

REMEMBER: You will lose your

medical aid subsidy & capped leave

when you leave the GEPF. But there

is a way to counter that with planning!

MEET THUMI

65-year old widow

One financial dependant; adult

disabled child

Capital at retirement to start small home business to supplement retirement

income?

R3.6m x anything between 22-30% gratuity. R3 600 000 x 28%

= R1 008 000 [tax payable]

Guaranteed income for life?

Yes e.g. R22 000 p.m.

Increases annually at 75% of inflation

Death after month 24 of retirement?

R22 000 x 36 = R792 000 pays to dependant

5 year guaranteed period

R2 592 000 capital applied to income stream 24 months before will be

forfeitedPlease note these are only illustrative values based upon the average rate of gratuity provided in

benefit statements

Capital at retirement to start small home business to supplement

retirement income?

R3.6m x 33.33% = R1 199 880 [tax payable]

Guaranteed income for life?

R2 400 120 used to purchase private income where a combination of

options are available that could provide

A. Guaranteed income plan – for life

B. Investment growth of a portion of capital and

C. Underlying remaining capital at death leaves a legacy

D. Life cover can be purchased to provide a legacy

Death after month 24 of retirement?

Remaining underlying capital not used of R2m will be available to

dependant – depending on how R2m was applied to provide a solution

R3.6m actuarial interest at date of retirement,10 years +

R E T I R I N G I N T H E P U B L I C S E C T O R

R E T I R I N G I N T H E P R I VAT E S E C T O R

N E E D S

• Capital at retirement to start small home business to supplement

retirement income

• Guaranteed income for life

• Support for financial dependant after death

HOW TO REALLY COMPARE APPLES WITH APPLES

1. GEPF Benefit Statement

▪ Date started at GEPF

▪ Date of Exit

▪ Actuarial Value amount (resignation)

▪ Amount of lump sum & pension from

the GEPF

2. Client cash lump sum requirements

3. Income expectations

4. Basic client information

5. Client must be over 55

6. Use the GEPF calculator

7.Speak to a financial adviser that can provide

private income quotations

T R A N S F E R / N O T T O T R A N S F E R

CONSIDER TRANSFER IF: CONSIDER STAYING WITH GEPF IF:

Legacy and care of spouse and / or

additional dependants is very important

Client does not require full pension

offered by GEPF

Spouse also member of GEPF pension

and medical aid

Health concerns / terminal

Good understanding of investment

implication(s)

Single member, no dependants

Have other provisions (life insurance for

legacy)

Does not want to make any investment

decisions

Long life expectancy (85+)

G E T A D V I C E

Choosing the post-retirement annuity option that best suits your needs takes

diligence, care and attention to detail.

We recommend that you speak to a financial planner to help you make an informed

decision.

THANK YOU

G L A C I E R F I N A N C I A L S O L U T I O N S ( P T Y ) LT D I S A L I C E N S E D

F I N A N C I A L S E RV I C E S P R O V I D E R .

This document is intended for use by financial intermediaries. The information in this document is provided for information purposes only and any opinions expressed and information provided by any

employee, officer or director of Sanlam and any of its subsidiaries during and pursuant to this presentation should not be construed as the rendering of advice to clients. Although we have taken

reasonable steps to ensure the accuracy of the information, neither Sanlam nor any of its subsidiaries accept any liability whatsoever for any direct, indirect or consequential loss arising from the use of,

or reliance in any manner on the information provided in this document.

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