OPTIONS ON LEAVING THE RETIREMENT FUND UMBRELLA FUNDS

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1 OPTIONS ON LEAVING THE ETIEMENT FUND UMBELLA FUNDS

2 2 ALEXANDE FOBES OPTIONS WHEN LEAVING IF YOU resign, or are dismissed or retrenched, there are a few options to consider. etirement annuity Locked in until retirement Higher fees Need financial advice Investment flexibility Leave your money in the fund Easy and convenient Low costs Investment flexibility Getting financial advice is not compulsory Move your money to your new employer s fund Locked in until you leave your new employer Low costs Potentially less investment choice Getting financial advice is not compulsory Move your money to a preservation fund Access to one withdrawal Investment flexibility Higher fees Need financial advice TAKE CASH If you choose this option, you will have to start saving for your retirement from scratch, and may not be able to stay on track with your long-term financial goals. We strongly recommend that you preserve your money for what it was originally intended an income in retirement.

3 5 ALEXANDE FOBES OPTIONS WHEN LEAVING Before considering your options The value of advice The value of getting financial advice from a qualified, professional financial adviser cannot be underestimated and is highly recommended. They: are experts in their field and have dedicated their careers to helping others reach their financial goals gather information that is relevant to develop a financial roadmap for you and make objective decisions on the most appropriate route to take assess the likelihood of reaching your goals and aspirations in retirement and help you structure your affairs to get maximum benefit from your hard-earned savings will also assess your other needs in retirement and make appropriate recommendations. How can you measure the value-add your adviser gives you? You can t base financial advice on a single investment transaction, but rather on an ongoing relationship as you work on an overall plan for your financial well-being. This would involve: setting a budget monitoring an investment, relative to its objectives choosing which types of investments to invest in providing holistic financial planning choosing a pension at retirement effective tax planning estate planning reviewing insurance cover. An important role of an adviser is to raise your general financial knowledge to empower you to make informed financial decisions. These could be decisions on investments, risk reduction and understanding the choices you have to make. When you are empowered about financial security you will start saving earlier and avoid unnecessary strain on your monthly income as you get closer to the end of the investment term (retirement, for example). You can use this to measure the quality of advice.

4 3 ALEXANDE FOBES OPTIONS WHEN LEAVING Let s look at your options in more detail Leave your money in the fund There s no minimum amount of money you need to have in the fund to access this option. By leaving your money in this fund, the investment fees are much lower because your money is still invested in the umbrella fund. You can stay invested in the same investment strategy that you had while employed. If you leave your money in the fund when changing jobs, you can still choose to have your money paid to you at a later stage, but you will need to take out all of your money in the fund at that later date. However, you may also choose to have part of the money paid out to you at that later stage, and the balance (or the full benefit) can also be transferred to another fund or preservation fund but you cannot rejoin the fund after that. Move your money to your new employer s fund You can transfer your retirement savings to your new employer s fund tax free at the time of transfer, unless you transfer from a pension fund to a provident fund. This is because of the different ways that contributions to pension and provident funds are taxed. You may not have full control of your investment transferred to the new employer s fund and may not be able to switch investment portfolios when you need to, as not all employers offer investment choice in their retirement fund. Move your money to a preservation fund Your retirement savings are transferred tax free to the preservation fund. You are allowed one withdrawal from the preservation fund if you need emergency funds. You can take all or part of your money in this one withdrawal. It s important to remember that if you take the one withdrawal, this will reduce your retirement savings and you will have to pay tax on any cash you take. If any other deductions were made before you transfer to a preservation fund (for example, through a housing loan), that deduction will be considered as your once-off withdrawal and you may not be allowed to take any more money from the preservation fund. The only deductions that will not apply are those in terms of a divorce or maintenance order payment. You have full control of your investment transferred to the preservation fund and can switch investment portfolios when you need to.

5 4 ALEXANDE FOBES OPTIONS WHEN LEAVING etirement annuity Taking your money as cash Your retirement savings are transferred tax free to the retirement annuity fund. You can transfer all or part of your withdrawal benefit to a retirement annuity fund. You can retire from the retirement annuity fund any time from age 55. You can take up to one-third of your benefit as cash when you retire. You must use the other two-thirds to buy a monthly pension, even if the money was transferred to the retirement annuity fund from a provident fund. You can make additional contributions to a retirement annuity fund, which can be structured tax efficiently. You cannot withdraw any money until you retire. You have full control of your investment transferred to the retirement annuity fund and can switch investment portfolios when you need to. Tempted to take your money as cash? We strongly recommend that you preserve your money unless your fund credit is extremely low. Instead, try to save your money for its actual purpose: your retirement. Only 9% of retirement fund members have enough money saved to see them through retirement. This is mainly because members don t preserve their retirement fund benefits when they change jobs.! Think about this: An increasing number of South Africans are retiring earlier and living longer. Many South Africans are forced to retire earlier than they had planned. It will take a very large amount of money at retirement to enable you to keep your standard of living and to enjoy the things you ve been looking forward to. In South Africa you are unlikely to get a state pension that will give you enough money to live on in retirement.

6 6 ALEXANDE FOBES OPTIONS WHEN LEAVING You will also have to pay tax on any amount you take in cash Your retirement benefit is taxed according to the tax table below. You can take a total of tax free once during your lifetime. Amount of cash taken when you change jobs % % % % Amount of cash taken when you re retrenched % % % % ate of tax emember that you will have less money to take tax free when you retire if you take cash when you change jobs. ate of tax emember: the tax-free amount is for your lifetime. So if you get a tax-free qualifying retrenchment benefit before you retire, you ll have to take less (or nothing) tax free when you retire. For more information on qualifying retrenchments, please speak to your human resources department. Consider your insurance benefits when leaving your employer You may have death, disability and other group insurance cover while you are a member of your employer s retirement fund and this will not continue when you leave. It s a good idea to speak to an accredited Alexander Forbes financial adviser to help you review your insurance. Some of the group insurance policies offer a facility to continue your benefits by changing it to a personal insurance policy when you leave the fund, with no medical evidence needed. Next steps 1 For more information on our in-fund preservation solution, please click here. 2 This is an important decision, so ensure that you speak to an accredited Alexander Forbes financial adviser. 3 You can then complete the withdrawal claim form. For any other queries, contact the Alexander Forbes Individual Advice Centre: Share call number: address: iac@aforbes.co.za Postal address: PO Box , Sandton, 2146 Alexander Forbes Life is a licensed financial services provider (FSP 1178). The information in this document belongs to Alexander Forbes. You may not copy, distribute or modify any part of this document without the express written permission of Alexander Forbes. Produced by Alexander Forbes Communications. Photos: Gallo Images AFF-DBr-Leaving