nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Retirement reforms will change the face of retirement strategies

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Retirement savings provide for income protection during retirement ages and allows for individuals to sustain their standard of living even after retirement. One key risk facing most insurance firms is that of longevity and increasing life expectancy of the covered population risk; in the case of employer sponsored pension this might put a cost strain on companies as they will pay cover for a longer term whilst for personal provision of retirement by individuals would mean that they run the risk of not having sufficient income to cover their necessary needs as years go by.

 

In order to mitigate such risks, this means retirement should be approached in a strategic manner. Regulatory reforms are at the forefront of protecting the public’s interest and well-being. An area of much interest lately by retirement regulatory reforms is that of provident funds and pensions. A common feature that has been surrounding provident funds is the issue of providing all retirement savings as a lump sum on retirement (http://www.blacksash.org.za/index.php/your-rights/social-insurance/item/you-and-your-rights-pension-and-provident-funds) which tends to be spent on less important expenditures. New retirement reforms aim to regulate this unnecessary spending of individuals by allowing only a maximum of 1/3rd of retirement savings to be taken up as a lump sum and the other 2/3rd of the provident fund to be in line with pension’s income structure of a regular income provision. This regulatory structure will not only ensure poverty levels in the economy is stable and everyone has a minimum income to live by during retirement, but allows employers to better smooth their profits in providing less lump sums to their provident fund employees in the event of unexpected retirement.

 

Source: http://www.fanews.co.za/article/talked-about-features/25/featured-story/1145/retirement-reforms-will-change-the-face-of-retirement-strategies/17790

 

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One thought on “Retirement reforms will change the face of retirement strategies

  1. Hi Aubrey, note that the paying out of lump sums will have no effect on employer profits – these lump sums are paid from the fund, which is a separate entity from the employer!

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