5 Advantages of adding a voluntary contribution to your pension fund
Putting away money each month into a Group Retirement Fund (Group Pension or Provident Fund) is an excellent way to ensure that you are financially prepared for retirement by saving for the future. However, with inflation hiking each year and cost of living becoming more and more expensive, there is a good chance that your minimum monthly contribution might not be enough to fight these increases.
One of the best ways to fight inflation while boosting your pension fund’s growth is by making an additional voluntary contribution or AVC to your Retirement Fund. An AVC is a continuous or once off contribution that you can make to your Group Pension or Provident Fund (should the rules allow), over and above your minimum monthly contribution. Setting up an AVC has many benefits, including:
When you decide to set up an AVC, you have absolute control over the amount and frequency of the AVC. You can also increase or decrease the amount or temporarily cease an AVC without accruing any penalties or additional costs. For example, you may decide to set up an AVC of R500,00 per month in January. If you have an emergency and need extra money in April, you may decide to decrease or cease your AVC. Later, once you have recovered financially, you can start it up again.
- Improved pension savings
The additional contribution you make to your Retirement Fund will improve your pension savings and increase your share of fund. This is extremely beneficial to you, because it may allow you to be more financially independent later in life so that you can maintain the required standard of living you might have come accustomed to and enjoy your retirement to the fullest.
- Increased tax benefits
By increasing your contribution to your Retirement Fund, you will be able to increase your monthly tax deductibility and effectively pay less tax. Remember all contributions to approved retirement funds, are tax deductible up to 27.5% of your annual income or remuneration, but capped at R350,000.00 per annum. The more you put in, the more you get out.
- It’s more cost effective
If you were to set up a separate private retirement fund in addition to your company retirement fund, and make additional contributions to the new private fund, you will have to pay a fee for the management and administration of the new fund. However, paying an AVC on an existing retirement fund won’t cost you more admin fees or fund set-up costs, because your company retirement fund is already set-up . It may be more cost effective for you to rather pay an AVC into your current retirement fund.
- All AVCs (and Pension and Provident Fund benefits) are protected from creditors
When a Group Pension or Provident Fund is in place, a creditor is not allowed to lay claim on any money that lies in your Retirement Fund, thereby protecting your retirement savings from debt collectors. The same will count for any AVCs that you make toward your Retirement Fund, making it a great way to protect your savings.
If you have a private or a company subsidised Retirement Fund and you would like to make an additional voluntary contribution, but you are unsure where to start, contact us today. We will guide you through the journey and ensure that you get the most out of your retirement savings.