OPTIONS AVAILABLE TO YOU WHEN YOU RETIRE

Your retirement is an important milestone in your life. Most people hope to be able to maintain a reasonable lifestyle in their "golden years". The purpose of this guide is to assist you in investing the money you receive from the Political Office-Bearers Pension Fund prudently.

If you are retiring soon, the Fund will inform you of the total amount of your retirement benefit. Once you receive this, you will need to contact your administrator who will supply you with an option form. You will be required to complete this option form so that the administrator is aware of the option you have exercised.

On receiving this information, the two most important questions you probably have are:

  • How should I invest my retirement money?
  • What amount of monthly income can I expect to get from this investment?

KEY FEATURES OF A PENSION

Now that you have thought about

  • what monthly income you need to cover your basic and luxury needs, and
  • the important risks you face in retirement,

the next step is to understand the key features of the different types of pension that are available to you when you retire. The following five key features should be considered in assessing the type of pension to be secured on retirement:

These five features are described in more detail below – think about them carefully, because next you will be asked to vote for which feature you value most highly.

Choice

“Choice” means that you can choose each year the amount of income you receive and also how your money is invested. It also means that you have some flexibility to change your pension according to your needs every year.

A vote for this feature indicates that you attach a lot of value to choice.

The investment expertise you must have to manage your pension

Some types of pension require you to have a great deal of insight into investing and managing your money – you have to take responsibility for how the money is invested (even if you are helped by a financial advisor).

A vote for this feature indicates that you rate your investment skills and competence highly and will therefore attach a great deal of value to this feature.

Security

“Security” means the extent to which your monthly pension is certain to be paid.

A vote for this feature indicates that it is important for you to have “peace of mind” with respect to your pension.

Inheritability

“Inheritability” means the extent to which your dependants will benefit from your pension after you die. A narrow form of inheritability is when only the people who are directly financially dependent on you (e.g. your spouse) continue receiving a pension when you die. With most types of pension, it is fairly easy to make provision for your spouse and others who may be directly dependent on you.

A broader form of inheritability is when even people that are not financially dependent on you (e.g. your adult children) benefit from your retirement savings after you and your spouse have died.

A high vote for this feature indicates that you attach a high value to the broader form of inheritability.

Costs associated with the pension

Different forms of pension have higher associated cost structures. Higher costs are not necessarily bad, but you need to be confident that you will receive adequate value for these higher costs. A vote for this feature indicates that you want to keep the costs associated with the pension as low possible.

Choose the features that you attach the most value to:

Please assign a score of between 0 and 4 to each of the features listed below.  For example, if you feel that “inheritability” is the only feature that is important, you would give it a score of 4, and give scores of 0 to the other features.  If you think a feature is somewhat important, you can give it a score of 1, 2 or 3.

Feature Your score for this feature
Choice (you would prefer to have a high degree of choice and flexibility after your pension starts being paid to you)  
Your level of investment capability (you believe you have a high degree of investment skill)  
Security (you would rather have “peace of mind” that your monthly pension income is very secure)  
Inheritability (you would like your family – not just your immediate dependants – to benefit from your retirement savings after you die)  
Low cost structure (you would like to keep the costs associated with your pension as low as possible)  

These scores will be used later in this section, under the heading “Which type of pension best meets your needs?

The Fund’s rating of these features in set out in the table below. You can check your understanding of a life annuity by comparing your rating to the Fund’s.

The rating is somewhat subjective so you should not be concerned if your rating is 1 point higher or lower than the Fund’s. On the other hand if your rating for a feature is much higher or lower than the Fund’s then you should revisit your understanding of a life annuity.

Feature of a life annuity Fund’s rating Reason for our rating
Choice 1 You only have choices at the start of the pension
You must have a high degree of investment expertise 0 Insurer makes all the investment decisions
Security 4 The current pension is guaranteed by the insurance company paying the pension. Future increases may or may not be guaranteed.
Inheritability 2 Your surviving spouse continues to receive a pension after your death.
Low cost structure 4 This is generally a cheap form of pension

These scores will be used later in this section, under the heading “Which type of pension best meets your needs?

Legal Disclaimer

The information contained in this site does not constitute advice by the Board of Trustees or by its advisors. If you need more information on how you can invest your retirement benefit, you should seek professional advice from a licensed financial advisor
.