Leaving your job
20 Sep 2016
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Choosing to leave a job is a tough decision. It's usually a drawn out process, where you must make life-altering choices for difficult questions. One of the most pressing concerns an employee has is to think about their retirement fund. This choice has short-term repercussions and long-term effects on an employee's retirement options. Should an employee leave with their money, withdraw it and invest it into another savings product or should they transfer it from one provident fund to another? What are the tax and regulatory implications for each of these decisions? It is a lot of information to process and the permutations can seem endless, but it's not.
What options are available?
When you leave your employer, you generally have the following options:
- Withdraw your funds as a lump sum
- Transfer your funds to your new employers pension or provident fund
- Transfer your funds to an alternative pension or provident preservation fund
- Move the funds to an alternative retirement annuity fund
The first option is not advisable because you will pay tax as per the withdrawal lump sum tax table that can be found
here. Remember that tax relief on lump sum benefits applies only once in a lifetime. Once you've claimed it once, you cannot claim it again. There's also the loss of future money that you will suffer when you withdraw your pension fund.
In the simplest terms, the money in your pension fund is a pot that grows every month. This growth is due not only to your contributions, but also the compound interest this money accrues thanks to the investments made on your behalf by your fund solutions provider. The longer this money is allowed to grow in this retirement pot, the more interest it gains. As time passes, this interest also starts earning interest, compounding the growth on your initial investment. For example, investments with a 10% return will double every 8 - 10 years. This is why Albert Einstein called compound interest "the eighth wonder of the world." Depending on your age, you will lose this 'doubling effect' two to three times if you constantly withdraw your retirement funds when you leave your job.
The other options are tax-free and by transferring your money to your new employer's retirement fund or keeping it in place, if you're part of an umbrella fund, you will enjoy this growth. This loss is best described by Liberty Corporate's Head of Umbrella Fund Solutions, Arno Loots,
"…that's a real impact which means you either have to work longer or you run out of money quicker, as your pot of money is only so big. Or the income you can buy is smaller". Another benefit of you transferring to an umbrella fund or your employer's retirement fund is potentially paying lower (group) fees in comparison to preservation or retirement annuity funds that are designed for individuals.
Can the funds be accessed by anyone?
By transferring to your new employer's pension fund or stating on your fund, not you or your creditors can access your retirement fund. There are exceptions to this; one such example is if there is a case of fraud or theft against you by your previous employer. Then they are legally entitled to lay a claim to your money to recover what is owed to them. The fund will not pay out any money to the employer until there is either an admission of guilt by the employee or an official court determination that clearly states the amount due to your previous employer. As Loots explains "We're (Liberty Corporate Umbrella Fund Solutions) not paying anyone until we know what all the facts are or there's a court ruling. And even then, we will never pay more than what is due to the employer. The money belongs to the employee."
If you are unsure about the options available to you when you leave your job, you can visit
www.liberty.co.za for more information, or speak to the HR representative in your company with the person responsible for your retirement fund.
Alternatively you can call Liberty Corporate Employee benefits enquires & claims on 011 408 2999 where an agent will gladly help you understand your rights and options.
*Liberty Corporate's Umbrella fund is the biggest umbrella fund in South Africa by member size.