A number of people, more often than not women, find themselves in a financial predicament at retirement age when they can do little about it, reports Shaun Harris
It is a cruel scenario that sadly is becoming increasingly frequent as South Africa’s divorce rate goes ever higher, and often includes couples getting divorced near or even after retirement age.
The woman, typically, has not been able to establish a solid career through being absent from the workplace for long periods of time to raise children.
When she has been able to work she has contributed to general household and family costs but has not worried too much about retirement, secure in the belief that her husband – he has been able to enjoy a long and stable career with a single employer – will take care of that.
After years together and the usual financial trials of raising a family, the children have finally all received a good education and have left home. Pretty soon after that the husband leaves as well, filing for divorce.
And the woman, not far from official retirement age and finding it difficult to get a job, is left to stare into the abyss of unemployment and poverty in what should be her golden years.
Even the 1989 changes to divorce legislation have not provided all the answers. The Divorce Amendment Act was aimed at providing more protection for a spouse who is not a member of her or his partner’s pension or provident fund.
The Act allows the divorce court to award a portion of the member spouse’s interest in a retirement fund to the non-member spouse, but the outcome is often not equitable. The non-member ex-spouse will have to wait until the former husband or wife reaches retirement age or leaves the fund before receiving any benefit.
Worse, that portion of the retirement fund allocated to the non-member spouse is effectively ring-fenced and does not grow from the time of divorce until the pay-out, which could be several years.
A number of people, more often than not women, find themselves in this daunting predicament at a time of life when they can do little about it.
Which points to one inescapable conclusion, says Sue Tosh, consultancy practice manager for Old Mutual Actuaries and Consultants. “Marriage is not a retirement plan. Don’t rely on your husband to contribute towards your retirement benefits: take responsibility for your own retirement. That’s my message to women,” she says.
Tosh’s advice is not aimed only at married women. “Women should take accountability for their retirement planning irrespective of whether they are single, divorced or married,” she says.
That means belonging to a retirement fund and making sure you get the most benefit from it. For instance, a member of a pension fund should try to contribute the maximum allowable in terms of the Income Tax Act – 7,5% current contributions and R1 800 per annum towards past service.
“This has the two-fold advantage,” says Tosh, “of feathering the retirement nest and reducing tax liability.”
But even long-term membership of a fund is rarely adequate to fully provide for a member during retirement. On average, membership of 15 years or more only equates to between 30% to 50% of the value of a member’s final salary after retirement.
Tosh says retirement annuities (RAs) should be used to bolster pension or provident funds. “They provide further tax breaks as well as an ability to further enhance retirement income,” she says.
RAs are particularly well suited to people who have often been forced to switch jobs or take long breaks between employment, often the case when women have children. Tosh says when women break service to have children it is not just the loss of income they should consider, but also the loss in retirement fund saving years. Keeping an RA going is a good option under these circumstances.
Many women manage to work from home while caring for children and running a household, often making them self-employed and therefore outside the scope of a formal pension or provident fund. Investing in an RA is particularly important under these circumstances.
Tosh also points out that RAs, as well as registered pension and provident funds, are largely protected from creditors in terms of the Pension Funds Act.
This is not only important for the self- employed woman, but also for the woman married in community of property. If her husband’s business is forced into liquidation, creditors have no claim against her RA.
When it comes to formal employer pension and provident funds, in the past often dominated by men and structurally biased against women, changes now give women the opportunity, even the obligation, to exercise far more control over how a fund is governed.
Tosh says the pension funds adjudicator who took office in February 1998 is looking at the effects of the Constitution in terms of retirement plans. Under the new Constitution unfair discrimination is prohibited, which creates the need for retirement fund trustees to examine the rules of their funds very carefully.
>From last year the revised Pension Funds Act stipulates that half the members of the board of trustees of a fund must be elected by the members of that fund, allowing women the chance to have a meaningful say in how a fund is managed and administered.
“Women should play an active role in retirement planning which could mean election to a board of trustees to ensure that their needs are taken into account,” Tosh says.