In South Africa, many people work well into retirement. Whether that’s a choice to keep busy or because most people are grossly under budget for retirement is debatable. But, what isn’t debatable is that to survive retirement without having to compete with South Africa’s high youth unemployment for jobs, you need to know how much you have in your pension fund and start making plans to save more, if necessary.
Step by Step Guide to Calculate Pension Fund
If you want to know exactly how much you have contributed to a pension fund, it’s time to pull out your payslips and look over your employer’s pension fund contribution. Your employer’s pension fund contribution will depend on your salary in addition to the fund your employer chooses to contribute to, as each fund has criteria that the contributors – in this case, your employer – have to comply with.
Step 1: Prepare Your Payslips
The amount your employer contributes will be available on your payslip. It may differ month to month if you have a commission-based job or complete shift work. For that reason, you can add every monthly contribution together. Alternatively, you could ask the HR department or payroll department what your annual contribution is to a pension fund to save yourself the time of having to calculate it manually.
Another trick would be to look through your tax returns. If your employer provides information to SARS about your pension fund contribution, the annual figure will be available on your ITR12 tax return, which you can access through e-filing.
Since SARS also has an extensive archive of returns, you can determine how much you have contributed if you got a promotion or changed jobs without having to dig up every payslip in the history of your career.
Step 2: Calculate The Total
Once you have your payslips ready, your historical tax returns or information from HR, you can add the total of each annual contribution. If you have also made any contributions, this would be the time to add those.
Don’t worry if you’re slightly off; these estimates will help you better plan your retirement savings.
If you need more accurate figures, you will need to contact your provider.
Step 3: Add Interest
Since your pension contribution goes into a fund, you should also add the effective interest rate to get a complete view of how much you have in retirement savings. Most funds will either invest in unit trusts – a low-risk option – or international and local funds that also carry minimal risk. For example, Old Mutual’s Retirement Annuity options give you an annual interest rate of between 5% and 8%. You can contact your retirement fund provider to get an annual interest rate.
Determine If You’re Saving Enough
Once you know more or less how much you have in your pension fund, it’s time to determine if that’s the ideal figure based on your age and stage of life.
Relying on being able to work in old age can be detrimental to your health and could be difficult to sustain. Whereas the old people’s grant, which is currently just under R2,000 a month, isn’t enough to cover rising electricity, petrol, and food prices, especially if you’ve gotten accustomed to the kind of money you will earn having a full-time job for most of your lifetime.
Multiply Your Needs By 300
To get an idea of how much you would need at retirement, you can multiply your currently monthly income by 300. So, if you live comfortably on R30,000 a month, in retirement, you would need R9 million. However, that figure can differ as you wouldn’t need to pay for expenses like school fees and the cost of raising dependents if you have any. However, this calculation factors in inflation. While you may not have the expenses associated with youth, by the time you retire, the value of R1 will have decreased significantly.
Once you know how much you need to retire based on this calculation, you should subtract your current age from the age of retirement. The result is the number of years you have to save before retiring.
Then multiply the number of years by 12. This figure will be the number of months you have left before retirement – and will help you determine how much your monthly contribution should be toward retirement. After you’ve completed this process, divide the amount you need by retirement by the number of months left until you retire to discover how much you need to contribute every month.
Consider Using a Pension Fund Calculator
If you don’t want to put in the effort to determine how much you should be saving in a retirement fund, there are pension fund calculators that make the process simpler. These calculators give you a rough idea of what your financial needs will be like at retirement, in addition to how much you can expect to get at retirement based on how much you put aside each month. Many calculators will also display potential retirement products once you complete the information in the calculator.
The Sanlam Pension Fund requires you to enter your personal details. You need to input your gender, age, retirement age, pretax income, existing retirement savings, and monthly contributions. The calculator also needs you to insert how much income you want to receive every month at retirement age. The calculator will then reveal the deficit – if any – to achieve a comfortable retirement.
Old Mutual’s calculator requires you to input your age, the amount you have saved in retirement funds, current monthly contribution, and monthly income into the calculator.
The calculator will then tell you how much you’ll receive a month at retirement based on the information you provided, in addition to how much you’ll need a month to continue living comfortably in retirement.
GEPF Benefits Calculator
If you are or have ever been a government employee, you’ll need to use the GEPF benefits calculator to determine how much you have in retirement savings. Unlike other calculators on this list, the GEPF calculator will reveal how much you’ll receive at retirement.
When using the calculator, input your initials and surname, followed by your date of birth. Then accept the terms and conditions.
You will then need to enter your service date and exit date in addition to what you would like to calculate (in this case, retirement).
If, for some reason, you need a precise figure detailing how much you have in retirement funds, compile a list of every former employer – where you did not transfer funds or withdraw benefits. Then contact the HR department to determine which fund they contributed to on your behalf. Using this list, you will need to contact each fund, either fax or email your details, before you can access details about the fund. Using this information, you can calculate how much you have in your pension fund and decide if you would like to consolidate these figures into one.