While there is no way to project an accurate valuation, there are a few points to look at to better understand the growth of your investment over time.
8 Mar 2023 00:47
I am 44 and have contributed to my employer’s umbrella pension fund since July 2013. I have kept a spreadsheet of all my contributions over the years and on December 31 2022 the total was R913 229. The portfolio is invested under “wealth creation” although I do not have underlying funds with me now. The current market value is R1 176 541 and my replacement ratio is 41%.
From the end of January, my new contribution for this year is R13 000 per month. The growth does not seem encouraging over 9.5 years and I want to manage my expectations.
What can I expect the market value to be when I am 55?
Dear reader,
Thank you for your question. While there is no way to project an accurate valuation, there are a few points to look at to better understand the growth of your investment over time.
The first point is the contributions made to your pension fund. While there are contributions made by yourself and your employer, keep in mind that the full contribution amount may not be allocated to the investment.
While the employee contribution is always fully allocated to the member’s retirement savings there is usually a portion of the employer’s contribution that goes towards group risk premiums and the administration cost of running the fund.
In your case, note that the full contribution of R13 000 per month may not all be going into your pension fund. Ideally, ask your employer for a detailed breakdown to confirm what amount is invested each month and how much is being allocated towards other possible costs and benefits.
The second point is understanding the fees on your investment as there are typically three fees charged on an investment.
Firstly, the investment management fee is charged by your investment manager for managing the investment fund, and this fee varies depending on the underlying funds. In addition, there may be an administration fee charged by the platform on which your fund is administered. Lastly, there may be an asset-based fee payable to the financial advisor which is charged by the advisor managing the pension fund. These fees are deducted from your investment.
The third point is that of the underlying asset allocation of your investment as this would determine the expected growth of the investment over time.
In this regard, note that there are four main asset classes: equities, fixed-income, property, and cash and cash equivalents. While legislation restricts you to investing a maximum of 75% in equities and 45% offshore in a retirement fund, the allocation would depend on the wealth creation strategy of the fund, bearing in mind that each asset class has different levels of risk and return. The funds should be allocated strategically across these asset classes to help balance your portfolio and align your returns with your investment goals and objectives.
Ideally, ask your employer for a comprehensive investment report which breaks down the allocation of your monthly contribution towards your investment portfolio, group risk cover and investment fees, together with an overview of the underlying strategy in which your funds are invested.
It is important to meet with a qualified independent financial planner to ensure that you are on track to achieve your retirement goals and objectives and who may be able to help you interpret and better understand the costs and asset allocation within your pension fund.
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