By: Tokiso Nthebe
The responsibility to retire with sufficient retirement benefits is yours. Sadly, too many members of retirement funds leave this responsibility to the government, employer or family members. Statistics indicate that only 6% of South Africans and I argue that Basotho too retire with sufficient capital which is alarming!
Ignoring retirement conversations, pension laws and how the retirement fund industry work should therefore NOT be an option. This blog and those to follow discuss the laws and principles that members of retirement funds need to know because they impact their retirement savings.
“Ignorantia juris non excusat” (Ignorance of the law excuses not) – Roman Law.
What are pension laws?
Pension laws such as the South African Pension Fund Act of 1956 or the Lesotho Pension Fund Act (PFA) of 2019 seek to protect the interest of members who make contributions into retirement funds. These laws and subsequent regulations govern how retirement funds should be managed, administered, funded and how assets must be invested to help members retire comfortably. Because the pension fund industry has shifted from defined benefits (DB) to defined contribution (DC) funds, the responsibility to ensure you have adequate savings for retirement lies with you.
What does this mean for you as a member?
Defined benefit (DB) vs. Defined contribution?
Defined benefit (DB) funds which apply where there is an employer-employee relationship determine an employee’s pension benefit pay-out using a formula based on the following factors i.e., number of years worked, prior earnings and the scheme accrual rate. With DB funds, the employer bears the investment risk to ensure adequate retirement savings. Whereas a defined contribution (DC) fund allows the employer and employee to jointly make contributions towards the retirement fund. With DC funds, however, the risk to ensure adequate savings lies with the employee.
So, how do pension laws shape your financial future?
As aforementioned, members of retirement funds are responsible to retire with sufficient retirement savings. It is key to know about the pension laws and how they protects your interests which I discuss below.
- Financial security and retirement income: Pension laws ensures that retirement funds are properly managed and governed so they provide you with financial security and income when you retire.
- Management of retirement assets: Pension laws provide regulatory oversight to ensure retirement funds do not mismanage member’s retirement assets or commit fraud. This includes ensuring the retirement benefits are invested on time to achieve desired returns.
- Transparency and accountability: Retirement funds are required to report on a regular basis and provide members with information that include benefits statements, annual financial statements, investment performance or associated returns.
- Protection of member’s rights: Pension laws also ensures that member’s rights and interests are protected. Where retirement funds violate these interests, members can take legal action against the retirement fund.
For anyone who follows my content, it should come as no surprise that I am passionate about retirement education and retirement planning. As such, I encourage you as a member of a retirement fund to familiarise and educate yourself with the relevant pension laws because they impact your retirement savings. When you know the law, you are empowered to hold retirement funds accountable and ensure you can retire financially secure.
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