RANDS AND SENSE – Personal Finance
Cashing in your pension or provident fund benefits when you change jobs is seldom the right thing to do. It would be wise to avoid doing so at all costs! Research undertaken by Old Mutual in 2017 showed that an increasing number of fund members planned to draw cash from their retirement savings if they changed jobs. Around 35% stated that they would do so compared to only 19% four years ago. The study identified various reasons for this increase, including the current economic downturn, increased debt levels, an increase in the number of retrenchments and the tendency for people to change jobs more often. The impact on the level of savings on those who accessed their retirement savings before retirement could be devastating.
The longer you delay saving for your retirement, the greater the percentage of your salary or income you will need to save in order to maintain your desired standard of living when you retire. The same Old Mutual study showed that in order to achieve a retirement income of around 70% of your final salary (assuming that you retire at age 65), you would need to invest around 12% of your salary towards retirement savings if you start saving when you are 25 years old. If you delay saving and only start when you are 35, you would have to save nearly 20% of your salary, and if you only start saving when you are 45, the amount increases to approximately 35%.
You do not usually have access to your retirement fund whilst you are working for a company, but if you were to resign, you would be faced with the decision as to what to do with the proceeds of your pension or provident fund. Depending on the length of time worked, this amount could have grown into a tidy sum of money. While it may be tempting for you to access some of your retirement savings by thinking that you will replace what you have withdrawn at some stage in the future, not many people are able to do so. This is especially relevant for those who already find themselves in a financial position where they need to access their retirement savings in order to survive.
National Treasury has recognised the devastating impact that this culture of “dis-saving” is having on the South African economy and is trying to come up with ways to discourage this behaviour. These include measures such as imposing existing heavy tax penalties on early withdrawals of retirement savings and the compulsory preservation of retirement savings, but the latter measure has been rigorously opposed by certain trade unions.
Ideally, it is always wiser to start saving for your retirement as early as possible and avoid any temptation to touch what you have saved until you retire. If you do resign from your job, you should seek the advice of an experienced Certified Financial Planner® to discuss how best to invest the proceeds of your retirement benefits. This may mean the difference between a comfortable retirement and being reliant on others for your survival when you stop working.
Rands and Sense is a monthly column, written by
Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth.
His Financial Planning Office number is 046 622 2891