My pension fund is dropping

Posted by

I’ve got a compulsory Provident Fund contribution via my company and I’m losing money!

It’s really scary seeing my annual statement and realising that I have literally lost money!

I’m sure many South Africans are in the same boat as me. I have to contribute to a fund but I have no say in who manages the fund, the fees nor the actual investments. It’s fine for people who aren’t interested in managing their money, but I find it annoying considering that I am really conscious of where I invest and how my money is growing (or not as in this case).

Most Unit Trusts, Pension & Provident Funds in South Africa are currently having negative performance. What this means is that the funds are losing money. There was a lot of heated debate at the office last week when we received our annual fund statements and people were complaining about the terrible fund administrators.

I don’t necessarily mean to stand up for the administrators but it’s not entirely their fault. They do charge higher fees than needed, they don’t necessarily care about my money as much as I do, and they certainly still earn huge profits when the fund growth is negative. But, the South African economy is not doing well at the moment and all equities have taken a knock over the past few years.

So what can I (and anyone else in this situation) do?

Talk to your companies HR department

A first step is to speak to the company HR department and find out if there are any alternative options for you from a company perspective. Perhaps there is a different fund that you could switch to or perhaps they have different investment options that you aren’t aware of.

Instead of just sitting back and feeling hard done by, rather take charge of the situation and find out what you can do.

Contribute the minimum if you have that option

Some companies (such as the one I work for) allow you to choose the percentage of salary you wish to invest in your provident fund. In my case the minimum is 5% and that’s the option I’ve chosen.

BUT (it’s a big caveat!!), you must then invest at least another 5% – 15% of your salary in other investments that you manage yourself. You could choose from RA’s, ETFs, TFSA’s, Unit Trusts, Kruger Rands, etc. I’m not advising all these products but rather suggesting that contributing the minimum to your company pension scheme does not mean that you can spend the rest you your money.

You must have other investments! Want to contact a Financial Advisor for help with this?

Don’t let emotions get in the way

It’s easy to make decisions based on emotions and not on sound principles. One suggestion I heard in the office was to contribute on the mimimum and then spend the rest on experiences. “Live in the moment” people were saying.

Well as great as that is, you need to be investing for the time when you no longer earn a monthly salary. You may live well in the moment now but imagine running out of money at age 70 – that won’t be so great will it?

Over time (and I’m talking about the long-term), investments do grow and compounded growth is a little miracle worker! Don’t be put off by one or two years of negative growth, stick in out and the markets will turn-around again.

Invest for the long-term, not the short “quick wins”.

Don’t assume that your company pension fund will be sufficient

This is a terrible assumption that many people make; they think that whatever company pension or provident fund they have will be sufficient for when they retire. Chance are great that it will not be the case!

Have a look at how much money you will need in order to retire and then compare this to what you currently have. You’ll probably find that you need way more! You can either push yourself to spend less and invest more or you can focus on building an additional income stream that can help you in retirement.

However, don’t assume that the company-mandated fund and contributions are enough.

In closing

It’s not nice to be forced to invest in a fund that you wouldn’t necessarily choose for yourself. Companies do however try their best to select a fair product as all employees (even the boss) has to contribute to the selected fund.

When our money isn’t growing as we would like it’s easy to blame all the external factors but instead of making rash decisions based on emotions you should rather do the calculations and see how much you have, what other options you have and focus on investments where you have more say on where and how you invest.

Looking at funds over the long term there is usually an upward trend and the 2 or 3 years of bad performance is generally outweighed by the good years.

Here’s a great post from WellSpent on how to retire like a tortoise. Slow and steady wins the race.

Retire like a tortoise

Please share your thoughts