| Private Portfolio |
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| Written by Artur Illmer | |
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A rather disconcerting issue has come to my attention in the last few months. It is an experience that fortunately ended favourably for the persons involved, but it still left a number of serious unanswered questions!
Many employees are members of a pension or provident
fund. This retirement provision also constitutes, in the majority of
cases, the main if not sole asset base on which that person will
eventually retire.
The majority of these funds have over the years changed their structure to so-called defined contribution or money purchase funds. This structure basically works like a savings account. The contributions are usually defined or expressed as a percentage of the member’s salary - hence the name. After the deduction of costs for benefits like disability cover, life cover and administration, the remaining portion of the contribution is invested in one or other investment vehicle. Therefore it is not very different in functioning to a savings account. Retirement Capital Whatever is accumulated in this fund by way of contributions and growth obtained on such contributions will ultimately constitute the retirement capital on which the member will retire. So the pension that the member will receive is not determined by some formula that takes his salary and service years into account like it is the case for government employees for example, but by the capital the member has at his disposal to invest. The member usually assumes that the accumulation of his retirement capital will be calculated correctly and hopefully will go a long way to meet his retirement needs. Pleasant Surprise I have now encountered cases where members who already had received their accumulated retirement benefits were pleasantly surprised to hear that an additional capital amount was due to them. This happened months after they had received their initial benefit. The first reaction to this is to say, how nice! However, on second thoughts the question arises whether my retirement fund has become some sort of lottery? The explanation by the respective administrators was simply that the benefit payable had been recalculated. Recalculated! Why? What made them decide to – months later – recalculate a pensioner’s retirement capital? This alone is enough to get very afraid. In the cases that I dealt with, the additional amounts exceeded ten percent of the original amounts that were paid! Scary, to say the least. To me that is quite some recalculation and that without any plausible explanation nor communication to the member. Very scary. What is even more worrying is the fact that these two particular pension fund administrators administrate the bulk of the pension funds in Namibia. Exceedingly scary! Statements Unlike a savings or unit trust account for instance where one obtains regular statements that reflect contributions, costs, interest or dividends earned and its current value, the modern retirement funds usually provide one benefit statement per year. These statements reflect the current benefits the member enjoys within the fund as well as the progress of the accumulation or savings account. Admittedly the reporting on these statements has improved over the years. Under these circumstances it however becomes advisable to start counting the beans. Open a file to keep these statements, but before filing these statements away, take a closer look at the accumulation process to see that it makes sense. Call on your financial adviser to assist you with one or two calculations if need be. This may enable you to ask one or more questions before it is too late. Furthermore it will also assist you timeously to establish how far this asset will go to provide for a comfortable retirement. |
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