Mod 3 Part 5 Retirement Plan as at Oct2014

PRESENTATION TITLEPRESENTATION TITLE

GOAL CATEGORIES & THE RMM SOLUTION

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Category Description RMM solutionInvest Saving for a future goal • 2-IN-ONE Savings 4 my Goal

• Single Premium investment plan

Retire Saving to be able to maintain a lifestyle after retirement

Retirement Plan

Death & Disability Leaving sufficient funds behind to settle outstanding debt and take care

of dependants

• Pure Life Plan• Life & Disability Plan

• Accidental Death & Disability Plan

Paying for a dignified funeral • Funeral Care Plan• Standard Funeral Plan

• Comprehensive + Funeral Plan

Education Saving for a child's education to ensure a brighter future

2-IN-ONE Savings 4 Education

Debt Free Settling all debt or consolidating debt to ensure greater disposable income

Old Mutual Finance

Household & Car Ensuring your personal belongings against theft or damage

iWYZE


FINANCIAL GOAL: MAINTAINING A LIFESTYLE AFTER RETIREMENT

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Why would your customers need to save for retirement?

Case study

• Medical expenses are usually higher at that stage• Income from pension fund is less than salary whilst

working• Because of inflation, the cost of living will be higher at

that time


RETIREMENT PROVISION

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Pension Fund

Provident Fund

Retirement Plan

AnnuityRetirement

Before Retirement After Retirement

Regular income


BASIC TERMS & CONCEPTS: RETIREMENT PLANWhat is a pension fund?

Both employee and employer contributes towards the fund. At retirement the employee can take one third as a cash lump sum and the remaining two thirds (compulsory money) has to be invested in an annuity

What is provident fund?

In many cases it is only the employer that contributes towards the fund. At retirement the employee is not compelled to invest his/her capital in an annuity.

What is a retirement plan?

A retirement plan is an investment policy and works very similar to a pension fund. At retirement or end of term the policyholder can take on third as a cash lump sum and the remaining two thirds (compulsory money) has to be invested in a retirement annuity.

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BASIC TERMS & CONCEPTS: RETIREMENT PLANWhat is a retirement annuity?

An annuity is an income purchased by a customer with a lump sum investment after retirement. There are two types of annuities, compulsory and voluntary annuities.

Compulsory annuities can only be purchased with compulsory money and voluntary annuities can only be purchased with voluntary money.

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Retirement PlanMinimum entry age for policyholder 18

Maximum entry age for Policyholder Must not be within 10 years from age 65

Minimum premium 150

Maximum premium 2000

Minimum term 10 years

Maximum term Until age 70

Earliest retirement age 55

Who can be the premium payer? Policyholder only

Surrender value available? No, unless:

•The policy is in a paid-up status•The combined paid-up value across all SARAF Retirement Annuities are less than R7000•The customer can prove that he/she has emigrated

Theory table

RETIREMENT PLAN: THEORY TABLE

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RETIREMENT PLAN: THEORY TABLE

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Retirement PlanPart-withdrawals allowed? No, unless Old Mutual receives a valid:

•Divorce Order instruction or•Maintenance Order instruction

Paid-up option available?

API applicable?

Premium Holiday

Family Support Services

Excluding Funeral Support


RETIREMENT PLAN: DISABILITY, DEATH & MATURITY

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Disability of policyholder Death of policyholder MaturityThe customer has 3 options:

1.Continue paying premiums2.Request that the policy be made paid-up if the minimum paid-up value is met.3.Claim the fund value with a valid disability claim

The full fund value available at the time of death will pay out in equal shares to:

•The nominated beneficiary and •Any other dependents.

If the Fund value <R75000

The customer can take the full amount as cash or buy an annuity .

If the fund value is >= R75000

The customer has 2 options:

1.Use the full fund value to purchase an annuity,

2.Take one third of the fund value as a cash lump sum. The remaining two thirds must then be used to purchase the annuity.


HOW DO YOU CALCULATE ONE THIRD AND TWO THIRDS?

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3/3 = R900 000

1/3 = R300 000

2/3 = R600 000

R900 000 ÷ 3 = 1/3

R300 000 × 2 = 2/3

R300 000

R300 000

R300 000 R900

000


HOW DO YOU CALCULATE ONE THIRD AND TWO THIRDS?

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Calculation

1/3 = R800 000 ÷ 3 = R266 666.67

2/3 = R 266 666.67 × R533 333.34


RETIREMENT PLAN: FEATURES EXPLAINED Will the cash lump sum be taxed?

The 1/3 cash lump sum is tax free up to R500 000. The example below will illustrate how this works in practice.

Example:

A customer’s total fund value at maturity is R 3000 000. Please calculate how much he will receive as a cash lump sum and how much remains to purchase the compulsory annuity.

1/3 = R3 000 000 ÷ 3 = R1 000 000

2/3 = R1 000 000 × 2 = R 2 000 000

R1000 000 – R500 000 (tax free portion) = R500 000

Only R500 000 0f the 1/3 cash lump sum will be taxed.

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RETIREMENT PLAN: FEATURES EXPLAINED What other advantages are there for a customer with a Retirement Plan?

The long-term premiums are tax-deductible, up to a limit. For tax-paying customers, this reduces the overall tax they owe SARS.

Investment growth is not taxed, which means the savings growth is higher than other plans, every year.

What is a divorce order?

The Pension Funds Act, provides upon divorce, for the processing of a withdrawal of an interest in the retirement plan of a policyholder to the non-policyholder. This withdrawal will be equal to a percentage of the fund value of the retirement plan as at the date of divorce. The withdrawal value can be paid into another retirement plan or directly to the non-policyholder and may be subject to tax.12


RETIREMENT PLAN: FEATURES EXPLAINED What is a maintenance order?

Special circumstances must be present for this to occur. The withdrawal will be as per the instructions in the Maintenance order. It may take the form of a monthly/annual/once-off withdrawal and is intended for use of the maintenance of children by the customer’s spouse.

What is a Section 14 transfer?

Policyholders can transfer their retirement savings between registered funds. A transfer value will be available after payment of the first premium. The transfer value will be the same as the surrender value.

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RETIREMENT PLAN: THE 2% RULE The 2% rule is a tool to make customers aware of the reduced income they might receive after retirement. It is especially a useful tool when dealing with government employees.

Example:

Mrs. Bulelwa is employed by the SANDF. She started working for government 9 years ago and during that time she contributed towards a pension fund. She is 37 years old and plans to retire at 60. Assuming her final salary that she would receive before retirement is R20 000, please calculate what her income gap would be after retirement.

R20 000 × 2% = 400 32 × 400 = R12 800

R20 000 – R12 800 = R7200

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RETIREMENT PLAN: THE ADVICE LED CONVERSATION

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Retirement Plan assessment

The value of Advice Led Conversation.


CALCULATIONS ON YOUR BLACKBERRY

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GEPF Retirement CalculatorActivity Description

Select the GEPF Retirement Calculator link. (GEPF) Government Employee Pension Fund is the government pension scheme and applies to Government employees only.

It’s important to read and understand the disclosures, then click next.



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Enter number of years of service in government employment (unbroken).

Current Age, the persons age at the date of input.

Current Salary per Month, the salary before deductions.Please Note:

Depending on your clients’ retirement calculation, a colour- coded message will be displayed.

Green: You are on track to your retirement



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Amber: You are doing fine but it is recommended that you add some extra retirement savings.

Red: It is HIGHLY that you add extra retirement savings (according to your financial ability)

Total Years of Service, a calculation of total working years at retirement age, 60.

Annuity, the amount you will receive monthly after retirement.

Mod 3 Part 5 Retirement Plan as at Oct2014

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Transcript of Mod 3 Part 5 Retirement Plan as at Oct2014