How to preserve your retirement savings when changing jobs

Many South Africans are simply not ready for the financial consequences of retirement, according to a recent survey.

While saving for retirement on a regular basis and throughout your career is very important, preserving your funds when changing employers should also be right at the top of your list of retirement savings dos.

The 2018 Sanlam Employee Benefits Benchmark Survey shows that retirement fund members are still no closer to their desired financial outcomes or maintaining their pre-retirement standard of living.

Further, a recent survey by recruitment agency Kelly found that 47% of South African employees have been in their current position for less than a year.

What is more, 36% identified their longest tenure with an employer as one to two years.

The vast majority – 44% – of survey respondents noted that they have had two to three jobs since they entered the workforce, followed by 29% who have had four to six jobs since they started working.

Changing jobs is to be expected in the environment we live in today.

The simple principle is, you work so you can provide for your family and your lifestyle, and you save so that you will have an alternative source of income to continue providing for them when you are no longer working.

One of the biggest problems in South Africa is people cashing out their accumulated retirement savings when resigning from a job.

When changing jobs, your employer will usually ask what you want to do with your retirement savings.

You can either transfer to another fund, like your new employer’s retirement fund or a preservation fund, or you can take a portion (or all) of your savings in cash.

A 2015 survey found that two-thirds of people leaving their jobs cash out their retirement savings, and many of them use the money to pay off short-term debt.

The long-term impact of this can be catastrophic.

Understanding your preservation options

While you can preserve your money in a retirement annuity or in your new employer’s retirement fund, many people want the flexibility of being able to access their retirement savings if they need to.

Preservation funds can be a good option to help people resist the lure of short-term spending, while allowing their accumulated savings enough time to grow tax free.

What is a preservation fund?

A preservation fund is a personal retirement savings vehicle that allows you to preserve and grow your benefits in a tax-efficient way.

They provide the flexibility of allowing you to make one withdrawal – of up to 100%, depending on the source – before retirement, subject to tax.

Selecting the best option for you is the first step, and a qualified financial adviser can help you weigh up the benefits of each of the available options.

Make sure that once you have preserved your money, you give it the best possible chance to grow at a rate above inflation by investing in the appropriate funds.

If you want to retire with enough savings to last a lifetime, you need to ensure that you use as many of the levers available to help you reach your goal.

Start early and save throughout your working life. But most importantly, preserve your savings along the way – your future self will thank you.