Question:
My husband retired because of an eye problem. He worked for 7 years and contributed R430 per month towards a pension fund and they only want to pay him out R36 000. I need to know if this figure is correct, because in the same company, under the name Workforce, my husband's friend was with them for 3 years and when he left he received the same pay-out amount. Could there be a mistake?
Answer:
Fazila,
Investing R430 per month for seven years amounts to total contributions of around R36 000. In other words, your husband is merely getting back his contributions (ie no investment return), which does seem very little. He should be receiving the total value of his contributions plus his investment return net of fees. Unfortunately, there are a lot of unknowns in this equation. How much of your husband's contribution went to admin fees, how much to pay for risk cover and how much was actually invested? How was that money invested - aggressively (in shares) or conservatively (mainly in cash)? What is the investment fee deducted? These factors may differ for your husband and his friend, depending on the choices on offer.
A comparison of their respective benefit statements may shed some light on why their outcomes differed so much. Also remember that the pay-out is taxed, other than the first R22 500. If your husband had previously withdrawn from another retirement fund, he may already have used up his tax-free allowance, which means that his pay-out would be taxed at a higher rate than perhaps his friend's.
It seems unlikely that the fund administrator made a mistake, but you are nevertheless free to lodge a query with them, and perhaps they will be able to explain the disappointing investment outcome.
