Proposals aimed at nudging you to do the right thing and preserve your retirement savings if you leave your job and helping you to convert your savings to a pension at retirement, were released by National Treasury this week.
The far-reaching proposals, contained in draft regulations under the Pension Funds Act, won’t remove your right to take your retirement savings in cash from an employer-sponsored fund if you leave your job, but will force you to think twice about doing so.
This is because your fund will be obliged to preserve your savings in the fund and give you a certificate saying you are a paid-up member of the fund. If you move to a new employer, your new employer’s fund will be obliged to transfer your savings into the new fund unless you specifically tell the fund you do not want your savings to be transferred, or if the transfer is not possible – for example, savings in a retirement annuity (RA) cannot be transferred to an occupation fund.
Treasury’s intention is that there should be a database of all paid-up members of all funds, and your new fund will be able to establish from this database whether you previously belonged to a fund and then assist you to transfer your savings to your new fund.
The aim is that you preserve your retirement savings in a fund by ensuring your savings follow you from job to job, rather than defaulting to a situation where you withdraw the money.
You will still always be able to withdraw the money or move it to another fund of your choice, but you may be less tempted to withdraw and you will have an alternative to moving your savings into a retail RA or preservation fund, which may involve higher costs for you.
If you leave an employer and decide to take your benefits in cash or transfer to another fund, your old fund will arrange a consultation with a retirement benefits consultant. The consultant will have to explain to you the tax you will pay on the lump-sum withdrawal and the long-term implications of prematurely withdrawing your savings in terms of the income you will receive in retirement.
If you still decide to take your benefit in cash, you will have to make a written request to withdraw the money.
Source: Personal Finance, 25 July 2015