What is an exchange-traded-fund (ETF)?

• An ETF is designed to give you the performance of an equity index, bond index, commodity or some other asset or basket of assets, without needing to invest in the underlying assets.
• Some are pure trackers (and so should give the same returns as the underlying assets), and others have rules to try an enhance performance or compensate for certain biases found in certain indexes. For example, too much exposure to resources shares.

Who should invest in an ETF portfolio?

• Anyone already saving their maximum tax deductible retirement contribution as well as their maximum R36,000 per year tax-free savings contribution, but who would like to save more.

What are the advantages of an ETF portfolio?

• They track the performance of a desired market segment or asset, providing an effective way to diversify your investment.
• They are cost-effective.
• There is no limits on the amount you can invest in local asset types.
• Offshore exposure is possible either through locally listed ETFs that track offshore indexes or through direct investment, which is subject to the limits in your annual foreign investment allowance.
• You are not obligated to withdraw the investment at retirement and there are no restrictions on what you can do with your money once you withdraw it.

What are the drawbacks of an ETF portfolio?

• Contributions are not tax deductible.
• Any income, dividend or capital gains will be subject to tax, which is paid within the structure.

How do I access my money from an ETF portfolio?

• Any amount can be withdrawn at any time.

What happens on death with an ETF portfolio?

• The investment forms part of your estate for estate duty purposes.

What happens in case of divorce with an ETF portfolio?

• This investment can form part of a divorce settlement.
• The settlement is mainly dependent on your marital regime.

What happens if I emigrate with an ETF portfolio?

• If you emigrate you can withdraw the full amount of the local portfolio. You will pay tax according to a tax table.
• In the case of an offshore portfolio, funds do not have to be repatriated. As long as you comply with exchange control, funds can be paid directly to any global bank account in the same name as the account holder.

What is a tax-free savings account?

• A tax-free savings account is a tax free product that encourages you to save over the long term.
• You are allowed to invest a maximum of R33,000 per annum (or R500,000 in your lifetime) into a tax-free savings account.

Who should invest in a tax-free savings account?

• Anyone who can save more than their maximum tax deductible retirement contribution (after tax income).
• Anyone able to save R33,000 or less a year.
• Anyone who can save more than R33,000 should contribute the 1^st R33,000 to a tax-free savings account and the balance to a normal taxable investment account.

What are the advantages of a tax-free savings account?

• No income, dividend or capital gains tax is paid within the structure.
• An portfolio tailored to your unique needs and preferences.
• You can make withdrawals at any time.
• You are not obligated to withdraw the investment at retirement and there are no restrictions on what you can do with your money once you withdraw it.

What are the drawbacks of a tax-free savings account?

• Contributions are not tax deductible.
• You will be penalised if you contribute more than R33,000 per annum (or R500,000 over your lifetime).
• IMPORTANT: Any excess contribution will be penalised with a 40% tax.
• If you make a withdrawal it can never be replaced.

What happens on death with a tax-free savings account?

• The investment forms part of your estate for estate duty purposes.

What happens in case of divorce with a tax-free savings account?

• This investment can form part of a divorce settlement.
• The settlement value is mainly dependent on your marital regime.

What happens if I emigrate with a tax-free savings account?

• If you emigrate you can withdraw the full amount of your investment.

What is a retirement annuity?

• A Retirement Annuity is a tax efficient pre-retirement product, which allows you to save towards retirement.
• You can add to this investment monthly or on an ad-hoc basis.

Who should invest in a retirement annuity?

• Self-employed people.
• People who do not belong to a company pension or provident fund.
• People who can save in addition to their company scheme contributions (e.g. 27.5% of bonuses if they are not included in the company scheme).

What are the advantages of a retirement annuity?

• Contributions are tax deductible up to 27.5% of your income, capped at R350,000 per annum.
• No income, dividend or capital gains tax within the structure.
• Contributions can be flexible.
• Tailor the portfolio to your unique needs and preferences.

What are the drawbacks of a retirement annuity?

• You cannot access your money before age 55.
• There are limits to your exposures. The main limits are maximums of 75% in equity, 25% in property and 30% in global investments.
• You have limited choices after retirement.

What are my options at retirement with a retirement annuity?

• You can choose to retire from the age of 55, but you are not obligated to.
• You may withdraw one-third (1/3) of the value at retirement. The first R500,000 is tax free.
• You must buy a regular income stream (annuity) with the balance.
• You can either choose a guaranteed annuity (life annuity) or a living annuity.
• A living annuity offers more flexibility and choice of income but this income is not guaranteed. An income of between 2,5% and 17,5% of the value of the investment can be drawn per year.
• If your total value in the retirement annuity fund is R247,000 or less, the full amount can be withdrawn as a lump sum.

What happens on death with a retirement annuity?

• If you have nominated beneficiaries then the value of your investment will be paid to them. This is, however, not cast in stone as the trustees of the fund are obliged to review your dependants and may override your nominations.
• The investment does not form part of your estate for estate duty purposes.

What happens in case of divorce with a retirement annuity?

• This investment can form part of a divorce settlement.
• Settlement is mainly dependent on your marital regime.
• Your spouse usually receives a percentage of the pension interest.
• The pension interest can be substantially lower than the market value of your investment. The pension interest is the sum of your contributions up to the date of divorce, plus simple interest at a prescribed rate.
• Your spouse may choose to either keep the funds invested in a retirement annuity or transfer proceeds to a living or life annuity if they need income.
• Any income received by your spouse is taxed in their hands.

What happens if I emigrate with a retirement annuity?

• If you emigrate, you can withdraw the full investment value. You will pay tax according to a tax table.

What is a preservation fund?

• A preservation fund is a tax efficient pre-retirement product, which allows you to preserve and grow savings for retirement.
• You cannot add to this investment, but may make one withdrawal before retirement.

Who should invest in a preservation fund?

• Anyone who changes employment (before the age of 55) and needs to transfer an existing provident or pension fund investment.

What are the advantages of a preservation fund?

• No tax is payable on the transfer of provident/pension to a preservation fund.
• No income, dividend or capital gains tax is payable within the structure.
• It’s ideal for individuals that may need access to capital as you can make one withdrawal up to the full value before retirement. The withdrawal will be taxed according to a tax table.
• You can tailor the portfolio to your unique needs and preferences.

What are the drawbacks of a preservation fund?

• No further contributions are allowed. A separate retirement annuity can be started for ongoing contributions towards retirement.
• There are limits to your exposures. The main limits are maximums of 75% in equity, 25% in property & 30% in global investments.

What are my options at retirement with a preservation fund?

• You can choose to retire from the age of 55, but you are not obligated to.
• You may withdraw one-third (1/3) of the value at retirement. The first R500,000 is tax free.
• You must buy a regular income stream (annuity) with the balance.
• You can either choose a guaranteed annuity (life annuity) or a living annuity.
• A living annuity offers more flexibility and choice of income but this income is not guaranteed. An income of between 2,5% and 17,5% of the value of the investment can be drawn per year.
• If your total value in the preservation pension fund is R247,000 or less, the full amount can be withdrawn as a lump sum.

• You can choose to retire from the age of 55, but you are not obligated to.
• You may withdraw 100% of the value at retirement. The first R500,000 is tax free.
• You must buy a regular income stream (annuity) with the balance should you not withdraw 100%.
• You can either choose a guaranteed annuity (life annuity) or a living annuity.
• A living annuity offers more flexibility and choice of income but this income is not guaranteed. An income of between 2,5% and 17,5% of the value of the investment can be drawn per year.

What happens on death with a preservation fund?

• If you have nominated beneficiaries then the value of your investment will be paid to them. This is, however, not cast in stone as the Trustees of the Fund are obliged to review your dependants and may override your nominations.
• The investment does not form part of your estate for estate duty purposes.

What happens in case of divorce with a preservation fund?

• This investment can form part of a divorce settlement.
• The settlement value is mainly dependent on your marital regime.
• Your spouse usually receives a percentage of the pension interest.
• The pension interest can be substantially lower than the market value. The pension interest is the sum of your contributions until the date of divorce, plus simple interest at a prescribed rate. Your spouse may choose to either keep the funds invested in a retirement annuity or transfer proceeds to a living or life annuity if they need income.
• Any income received by your spouse will be taxed in their hands.

What happens if I emigrate with a preservation fund?

• If you emigrate you can withdraw the full investment amount but it will be taxed accordingly.

• You can choose to retire from the age of 55, but you are not obligated to.
• You may withdraw one-third (1/3) of the value at retirement. The first R500,000 is tax free.
• You must buy a regular income stream (annuity) with the balance.
• You can either choose a guaranteed annuity (life annuity) or a living annuity.
• A living annuity offers more flexibility and choice of income but this income is not guaranteed. An income of between 2,5% and 17,5% of the value of the investment can be drawn per year.
• If your total value in the preservation pension fund is R247,000 or less, the full amount can be withdrawn as a lump sum.

• You can choose to retire from the age of 55, but you are not obligated to.
• You may withdraw 100% of the value at retirement. The first R500,000 is tax free.
• You must buy a regular income stream (annuity) with the balance should you not withdraw 100%.
• You can either choose a guaranteed annuity (life annuity) or a living annuity.
• A living annuity offers more flexibility and choice of income but this income is not guaranteed. An income of between 2,5% and 17,5% of the value of the investment can be drawn per year.

Today’s Money

The amount you need based on how much things cost today. The impact of inflation on costs makes it difficult to know how much income you will need in retirement. Therefore it is easier to remove the effects of expected inflation when considering your savings goals. We make this adjustment for inflation for you in our calculations.

Before income tax

At retirement, you will need to buy an annuity that pays you income with the funds in your retirement annuity and any other retirement funds (such as preservation funds). The income that you draw from this annuity will form part of your total taxable income, and therefore may be taxable (just as your current income is taxable). The tax on this income is different for everyone, and so the retirement calculator asks you to set a target income before tax. You will need to take into account your expected income tax in retirement when selecting the monthly income you would need to draw.

How does a risk strategy affect my investment?

Selecting a risk strategy that best suits you is an important part of your savings and investment strategy. The higher your risk level, the bigger your potential gains but also your potential losses. Taking risks over the long term is critical to increasing investment returns and reaching your investment goals.

Generally speaking, the longer you intend investing your money, the more risk you are able to take. This is because both your chance of losing money and the volatility of your returns reduces the longer you hold an investment. Over a long period of time the years in which your returns are poor can be offset by the years in which the returns are very good.

This does not mean that you cannot take a risk closer to retirement, or during retirement for that matter. We are living longer and longer making it necessary to take risk in order to achieve returns.

Risk change over time

Potential gains and losses

The chart below shows the typical range of possible investment gains and losses per year by risk strategy. During our online process, you will be asked to select a risk strategy that best suits you. The small blocks show the expected average yearly return per risk strategy. The vertical lines represent the likely range of possible returns around this average every year.

We always take into account how long you intend investing for when selecting the right investments for you. The “aggressive” risk strategy we implement for someone in their 20s is quite different from that of someone at or after retirement. So what we are trying to establish is how much risk you are willing to take over a long period of time for an expected level of reward, in the form of investment returns.

Some descriptions to guide you

Aggressive risk strategy

You are looking to maximise returns and understand that there will be times when your portfolio will suffer losses (sometimes substantial losses). However, you also expect years where you will make substantial returns to more than offset any loss making periods. It is highly unlikely but not impossible that at the end of your investment period you will suffer a loss.

Moderate risk strategy

You are looking for moderate returns and understand that you are likely to experience losses at times, but are uncomfortable with these being substantial (although there is still a possibility). As with an aggressive strategy, there will be years of strong returns but to a lesser extent.

Conservative risk strategy

You would rather have much lower returns that at times may not even beat inflation because you are more concerned with minimising your chances of making any losses. This is not a common long term investment strategy and can seriously jeopardise your ability of attaining your long term investment goals.

Please note:

We encourage you to see what the impact of choosing different risk strategies is on both the size of your expected level of return and on the variability of that level of return. You will be given an opportunity to do this as one of the steps in our online process.

We review your choice of risk strategy with you at least once a year to ensure it is still relevant to your current circumstances. Over and above this, we will gather additional information from you as you approach retirement and adjust your investment and risk strategy accordingly. Your investment and risk strategy leading up to and at retirement is largely dependent on your income needs as a percentage of your portfolio value at the time.

These are companies listed on the JSE. Equities tend to deliver higher returns over the long term.

The variation or volatility in returns can be large and can include losses, making this a risky asset class. It is important not to focus on these variations over the short term as the volatility of the average return over the long term is typically much lower.

It is a very important asset class for achieving long term returns.

These are companies listed on the JSE that are invested exclusively in property. Property tends to deliver higher returns over the long term and can behave quite differently to equities, sometimes performing better and sometimes worse.

The variation or volatility in returns can be large and can include losses, making this a risky asset class. It is important not to focus on these variations over the short term as the volatility of the average return over the long term is typically much lower.

It is a very important asset class for achieving long term returns.

These are long term debt instruments issued by the South African government. The government borrows money and then pays it back over time with regular payments called coupons. Some coupons are linked to the inflation rate, changing as inflation changes. Bond prices move up and down depending on expected changes in interest rates. Bonds tend to deliver lower returns than equity or property over the long term but with less price variation or volatility, hence lower risk.

Bond prices behave very differently to equity making it an important asset class for reducing the overall risk of a portfolio.

We get exposure to cash through money market instruments. A money market fund would typically be invested in a variety of maturity dates, ranging from a month to a year. The fund will also be invested with a variety of banks or institutions to reduce exposure to any individual institution and hence reduce risk.

This is the lowest risk asset class. The more conservative your risk strategy, the more cash will be included in your portfolio.

These are companies listed on exchanges around the world. Equities tend to deliver higher returns over the long term.

The variation or volatility in returns can be large and can include losses, making this a risky asset class. In the case of global equities, this can be even more extreme as the Rand value changes against other currencies.

Exposure to global equities is very important in reducing risk by not only being exposed to South Africa. Markets in different parts of the world can deliver very different returns.

Movements in the Rand add another dimension to this asset class, further diversifying the overall portfolio and thereby reducing overall risk even further over the long term.

It is a very important asset class for achieving long term returns.

We include exposure to metals like gold, platinum and palladium in certain portfolios. Commodities tend to deliver higher returns over the long term.

The variation or volatility in returns can be large and can include losses. As these metals are priced in US dollars, changes in the value of the Rand impact volatility for South African investors further.

Exposure to commodities can reduce the overall risk of a portfolio because they can behave quite differently to any of the other asset classes.

• Our calculations adjust your risk profile over time, based on the size of your withdrawals as a percentage of portfolio value.
• You have a 1 in 4 chance of living longer than indicated by our calculations and this calculation is a base case. Investment returns could be at the bottom of the range so you need to plan for longer.
• This calculation assumes you will live off your investment after retirement. There are other options at retirement, like annuities that provide a guaranteed income for life. We will assist you in your choices closer to retirement based on your situation at the time.
• Please see our terms of service for the assumptions used in calculations.