The Ghanaian Journal

Iona Minton

Question:
I work in insurance and am therefore all for saving for retirement. However I am going to study again next year and might run out of funds towards the end of the year. I would therefore like to have easy access to the money from my provident fund while having it still grow.

Are unit trusts therefore a good idea? If I don’t use it thereafter, can I withdraw it again and put it into an annuity? I need the most growth with the least tax. Any suggestions?

Answer:
If you take money out of your provident fund, the portion the company contributed on your behalf is tax deferred, so this means that you will be taxed at your marginal rate of tax.

In other words if you have saved R100 000, then R50 000 will be taxed when you cash in. If your tax rate is 35 percent, you will have to pay R17 500 to the receiver. If you borrowed the money for one year at a rate of 15 percent, it would be far cheaper to pay the interest.

So you can’t access to retirement funds and still “have them grow”; it’s either in or out.

You can of course reinvest your money at any time. If you invest in a retirement annuity, be warned that you will not be able to access the funds until you reach 55.

Rethink your views

Unit trusts are really a medium-term investment for three to five years so not really suitable for your objectives.

You need to rethink your views on your retirement funding. It is not a savings account that you can dip into when the need arises. Retirement funds should be untouchable; moving them in and out of plans will just erode the capital amounts, attract tax and not give them time to grow into anything meaningful.

You should look at an alternative source of funding for your studies. If you have an access bond, you can use the facility for short-term objectives, as long as you make increased payments to settle the debt as soon as possible (you don’t want to finance your studies for 20 years).

Work part time

Perhaps you could borrow the money from a family member at a reasonable interest rate. You could also consider working part time to keep your cash flow going.

Lots of adults are going back to university to get MBA’s, while retaining their jobs, as they’ve often a family to take care of. And they still manage to graduate.

Taking time off to study nowadays is a luxury (even though it will enhance your career), so like all luxury purchases, they should not be funded by credit, and much less pension money.