Changing Jobs - Pension

[Chevron]

So I've tried to keep track of the previous pension info dished out, but there's so many if ands or buts and specific situations.

So here goes:

I'm changing jobs and need to decide what to do with my current pension fund contributions.

the work gave me a document with these options:

1. Remain with Alexander Forbes Preservation Fund

2. Another approved Preservation Fund

3. Retirement Annuity Fund

4. New Employer’s Fund

5. Cash: Complete

Each with a list of their pros and cons.

Considerations:
I have a personal loan of R24k currently that I'd love to get rid of.
I have an RA with liberty, but a relatively small amount.
I haven't yet asked if my job will do employer contributions to pension, if they don't I'll be sure to drastically increase my own RA or start a new one. As this is a rather large company though I think we can assume they do.

 

[ABCpt]

Seeing as it is pension money, I would ask what is available at the new company and transfer the entire amount to their fund.

 

[bchip]

Seeing as it is pension money, I would ask what is available at the new company and transfer the entire amount to their fund.

This is good. Just try and make sure its not with Alexander Forbes if you can, they are absolutely rubbish.
Allan Gray, Momentum and Coronation are much better over a longer time.

Its a good idea to keep contributing to these funds over a longer period, it will help a lot when you retire.

 

[Spies69]

With options 1-2 your money will be moved tax free into a preservation fund which means you will have one withdrawal (will get taxed) before retirement which you can use in emergencies. (Warning - in the long run taking money from your retirement savings is extremely dangerous and will reduce your standard of living at retirement) With preservation funds you are not allowed to pay additional contributions into the fund, this however isn't a problem because you can always start a new retirement annuity, increase your existing one or contribute via the employer.

Option 3-4 your money will be moved tax free into a retirement annuity/employers pension from which you are not allowed to take any cash out before retirement and you can contribute additional amounts.

Option 5 your money will get taxed at your current marginal rate and you will be free to invest the money wherever.

If I where in your position I would go with option 3 for the following reasons:
a) You already have a retirement annuity fund outside of your current or new employer's scheme so the money will get transferred tax free into a fund which you are already familiar with and (assuming you did your homework) has low fees and an appropriate fund choice.
b) Option 5 will tempt you to use the money and ultimately reduce your standard of living at retirement
c) Option 1-2 is nice but having 3 different retirement saving funds to keep track of might get difficult (Preservation, annuity, employer), rather keep it simple and make sure you know your on track with your retirement goal. Having the 'one withdrawal' option might be tempting but as mentioned before you will regret this at retirement

Let us know what you went with

 

[Chevron]

With options 1-2 your money will be moved tax free into a preservation fund which means you will have one withdrawal (will get taxed) before retirement which you can use in emergencies. (Warning - in the long run taking money from your retirement savings is extremely dangerous and will reduce your standard of living at retirement) With preservation funds you are not allowed to pay additional contributions into the fund, this however isn't a problem because you can always start a new retirement annuity, increase your existing one or contribute via the employer.

Option 3-4 your money will be moved tax free into a retirement annuity/employers pension from which you are not allowed to take any cash out before retirement and you can contribute additional amounts.

Option 5 your money will get taxed at your current marginal rate and you will be free to invest the money wherever.

If I where in your position I would go with option 3 for the following reasons:
a) You already have a retirement annuity fund outside of your current or new employer's scheme so the money will get transferred tax free into a fund which you are already familiar with and (assuming you did your homework) has low fees and an appropriate fund choice.
b) Option 5 will tempt you to use the money and ultimately reduce your standard of living at retirement
c) Option 1-2 is nice but having 3 different retirement saving funds to keep track of might get difficult (Preservation, annuity, employer), rather keep it simple and make sure you know your on track with your retirement goal. Having the 'one withdrawal' option might be tempting but as mentioned before you will regret this at retirement

Let us know what you went with

That simplified it a lot thanks.

The 1 time tax free with drawal, is that per fund, or once forever?

What about taking advantage of the R22500 tax free portion to get of a personal loan? Isn't this best long term?

 

[Dubes]

Is your current fund definitely a pension fund and not a provident? People tend to always refer to them as the same thing, rules at retirement differ (1/3rd cash withdrawal vs full withdrawal).

I'd not move provident money into an RA as you are then restricting it. Rather put it into a preserver.

Values would influence the decision too though. If there is only a small amount you might just transfer it into your RA.

Of course proposed legislation may change all of this.

 

[Dubes]

I'll add to this that having more than one retirement vehicle is not necessarily a bad thing as it allows you to stagger your access to them at retirement. You may decide to take one when you're 55 to supplement earnings and then take the other when you're 65 and fully retire, just as an example.

 

[Cius]

Transfer it into the new pension. That way its easier to monitor and you don't lose it. Sometimes people loose track of the preservation funds and forget that they are in medium or low risk when they should be high or vice versa near retirement.

 

[Gaz{M}]

I have an RA with liberty, but a relatively small amount.

Is this an "old style" RA where they eat your money with fees? then stay the heck away from this option. Rather get a proper RA with an investment company like AG or Coronation that allows you to buy unit trusts with up to 75% equities.

I'm not convinced about company pension/retirement funds. A lot of them are still run buy the old school pension companies like Liberty, Sanlam and OM and they end up eating a lot of your returns in ridiculous fees (3-5% pa).

For that reason, I say going your own independent route is a much more attractive option - ie: new generation RA or preservation fund with AG/Coronation etc.

 

[SauRoNZA]

1. Remain with Alexander Forbes Preservation Fund

I took that option and it has worked out very well for me.

I have a personal loan of R24k currently that I'd love to get rid of.

Personal loans are incredibly high interest rate debts and this might knock you quite badly if you leave it sitting there. I recall you can take out a certain percentage tax free.

Maybe take out the minimum you can and pay off the debt.

I haven't yet asked if my job will do employer contributions to pension, if they don't I'll be sure to drastically increase my own RA or start a new one. As this is a rather large company though I think we can assume they do.

Uhm...how do you take a new job without even knowing this stuff beforehand?

And certainly don't assume anything based on the size of the company.

 

[OrbitalDawn]

Personal loans are incredibly high interest rate debts and this might knock you quite badly if you leave it sitting there. I recall you can take out a certain percentage tax free.

Maybe take out the minimum you can and pay off the debt.

Definitely agree with this. Any unnecessary debt is vile scum that needs to get zapped, pronto. Especially personal loans.

Uhm...how do you take a new job without even knowing this stuff beforehand?

And certainly don't assume anything based on the size of the company.

Was wondering the same thing. It's one of the first things you find out, I'd reckon.

Anyway yeah, size of the company doesn't always come into play. I've noticed many places offering 1 year contracts with no benefits as a starting point for new employees and then potentially a a permanent position after that.

 

[Chevron]

Well new place has a 3month probation so not that. You are right though. 1st time I'm changing companies in about 5 years and the question didn't really occur to me. I have been in contact with their HR person though and will make sure to ask these questions shortly.

 

[MrR]

Heh, I'm in the same position today and was just about to post what the best options are.

Thanks for all the info guys.

 

[SauRoNZA]

Well new place has a 3month probation so not that. You are right though. 1st time I'm changing companies in about 5 years and the question didn't really occur to me. I have been in contact with their HR person though and will make sure to ask these questions shortly.

Any new place has three months probation. It's the law.

These questions you should have confirmed before even taking the job.

Unless you haven't taken it and still negotiating that's something else.

 

[Arthur]

Any new place has three months probation. It's the law.

Not so. Whilst the law permits employers to stipulate a probationary period, typically three months, it does not impose or require it. The parties are free to negotiate their own terms, including full, permanent, non-probationary employment from day one.

 

[SauRoNZA]

Not so. Whilst the law permits employers to stipulate a probationary period, typically three months, it does not impose or require it. The parties are free to negotiate their own terms, including full, permanent, non-probationary employment from day one.

When you put it like that I should have said it's "the norm" not the law.

 

[Stefanmuller]

The wife is in the same boat with her providend fund. Just remember moving it to a RA restricts access till the time you reach 55, and then you are only allowed to withdraw 1/3 as lump sum. You never know when you will need a portion of your savings whether for deposit to buy a house or pay unexpected expenses. If you have separate savings the choice is a lot easier.

It sucks that you can't contribute to a preservation fund.

 

[noxibox]

I've noticed many places offering 1 year contracts with no benefits as a starting point for new employees and then potentially a a permanent position after that.

Which is completely illegal. Under South African labour law only independent contractors can be excluded from benefits provided to employees.

 

[OrbitalDawn]

Which is completely illegal. Under South African labour law only independent contractors can be excluded from benefits provided to employees.

But if they're not actually offering a permanent position?

 

[noxibox]

But if they're not actually offering a permanent position?

Irrelevant. If they have benefits they cannot exclude an employee on contract unless the person fulfills the requirements to be considered an independent contractor. As far as South African law is concerned there are employees and independent contractors. I've noticed a lot of South African companies still make a habit of breaking the law though.