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Thread: Retirement Planning/Investing

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    Retirement Planning/Investing

    Hi all!

    I am an expert in this field and would like to answer any queries.

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    Site Caretaker Dave A's Avatar
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    Hi Mike,

    What are the material differences between a pension fund and a provident fund?
    The trouble with opportunity is it normally comes dressed up as work.

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    Just when i was looking for an expert, we find one who was "expert" in ?. Just got me wondering. Dave, were you a private investigator in your previous life?

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by flaker View Post
    Dave, were you a private investigator in your previous life?
    I don't recall a previous life, let alone ever being a private investigator
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Dave A View Post
    Hi Mike,

    What are the material differences between a pension fund and a provident fund?
    Lol..l Dave I'd answer your question but I'll wait for the expert answer first and then I will agree or critise it
    I manage a few of those, I believe I know a thing or two
    ---There is no traffic at the extra mile---

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    Site Caretaker Dave A's Avatar
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    mikeytdurbs has already had some 60 days to think about it, Nickolai.

    Maybe it's too big a question (like "how to make money" ) and needs to be narrowed down a bit. But at least a few headline differences would be useful, and then we could drill down on specifics from there.
    The trouble with opportunity is it normally comes dressed up as work.

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    Lol... I only noticed now whet it was posted, so Mikey lost out on a provident fund opportunity

    Ok, there are differences, I'm gona try keep it short even though quite a few things have to be mentioned.

    Both are governed by the Pension Funds Act. Both of them there has to be agreement between employer and employee, once the fund is introduced to a company all new people must join the fund but existing staff have a choice to join the fund or they are given a period to join, so in other words it is compolsory. Pension fund is tax deductible up to the maximum of 7.5% of the employee salary, where provident fund is not tax deductible, however in both you can have a maximum of 20% contribution. Provident fund one can withdraw their funds when they leave the company they work for while pension fund they have to keep to at least age of 55. Provident fund you can withdraw the whole amount and pension fund maximum of 1/3 on retirement and the rest 2/3 paid as annuity where the first 315 000 is tax free and the rest is taxed as per the lump sum taxation table on retirement, the annuity you receive can be annually, bi-annually, quaterly or monthly and it will be taxed as per the tax tables as if you are receiving a salary amd people over age 65 get an extra rebate of R6015 pa, people over 75 get anther R2000 on top of that as well.

    Of course having any fund is a benefit to your members, it makes sure that their families are taken care of in case of death, disability, terminal illness as well as retirement as often family members go to the employer asking for money. It also helps with retention of staff. It makes sure people will have money when they retire. These corporate benefits are structured to suit every need of a company and it's employees, there can be created different tiers of people, benefits, funds and so on. There is always a medical free limit which means that you can get people on the fund that generally will habe a loading or won't be accepted by a life assurance company. The money that the employer contributes are also tax deductible as it is seen as cost incured in production of income. A fund can be implemented at any stage, presentation can be done in front of all the employees andthen they can be advised individually. Goverment is working on making retirement funds compolsory so in the next 2-3 years you as a company will have to have corporate benefits and why wait until then when you can do it at an earlier stage and avoid last minute rush? So it only makes sense to introduce a fund.

    From next year the maximum tax deductible contribution will be increased from 15% to 22.5% accross all retirement funding, reason for it is that not many people save for retirement.

    I hope all this helps, if you have any questions let me know and if you want to do a fund I'll be more than happy to be the person who you use for that purpose
    ---There is no traffic at the extra mile---

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    Site Caretaker Dave A's Avatar
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    So withdrawals from a provident fund are not taxable?
    The trouble with opportunity is it normally comes dressed up as work.

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    A portion of it will be taxable, reason for that is employer contributions. So employer contributes certain amount towards the employee, the company claims the money as cost to production of income and thisnportion is not taxed. The employee portion is not tax deductable so he/she will pay tax on the contributions but won't pay tax on that portion on withdrawal. For example a person is working at a company and has R200 000 in the probident fund, let's say the contributions were 50-50 employer-employee which would mean that R100 000 have been taxed already and won't be taxed now(thereis no double taxation in SA or so they say lol...), the other R 100 000 will be taxed as per the lump sum withdrawal table which on this amount will be 100 000 - 22 500 = 77 500 @ 18% so in that case the total tax will be R13 950. Remember that the money can also be moved to a preservation fund where ithe whole amount won't be taxed. If the person decides to withdraw the money from the preserver they can do that, but the same can't be saod for pension fund as it depends on the rules of the fund.
    ---There is no traffic at the extra mile---

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    employers are,however, more in favour of pension funds, where they themselves are also members. why is this? in short i was given to understand some 30 years ago that as the employee was not permanent permanent if you understand what i mean as compared to the owner employer & he would only get a portion of the the employer's contribution dependant on his years of service upon resignation. the balance that remained was redistributed to the remaining members.therefore the longest serving member gained the most. no prize in guessing who that was.
    The above is my understanding & i stand to be corrected.

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