A retirement fund that pays a member who has retired an annuity (also called a “pension”) for the remainder of his or her life in regular instalments, usually on a monthly basis. It may also pay an annuity to the member’s surviving spouse or child, if applicable. The fund may allow a member who has decided to retire to elect to take up to one third of the capital value of the member’s retirement benefit in the form of a lump sum but it will not allow the whole of the capital value to be paid in this way if it is above a threshold. Instead the balance must be paid in the form of an annuity
Provident fund A retirement fund that pays only a lump sum benefit to a member when he or she reaches retirement age
Defined benefit fund A retirement fund which provides a retirement benefit that is determined as an amount equal to the member’s final average salary multiplied by the years of his or her pensionable service multiplied by an accrual factor determined by the fund’s valuator in terms of the rules. The amount of a member’s retirement benefit is determined in terms of this formula and is not based on the contributions paid for that member. The rate at which the member contributes to the fund is usually fixed as a percentage of that portion of his or her pensionable salary. The rate at which a participating employer is required to contribute to the fund (which rate may change from time to time) is usually determined on a “balance of cost” basis. This means that the fund’s valuator works out the rate at which the employer will need to contribute to the fund over a period of time if the fund is to remain financially sound and thus be able to meet its benefit liabilities as and when they arise.