Sanlam concerned about teachers cashing in pensions early

Action required to assist people with information regarding proposed changes to retirement fund regulations.

People who resign to cash in their pensions are putting their financial future and well-being at risk because they are likely to spend hard-earned money intended for their retirement, says Karin Muller, head of Growth Market Solutions at Sanlam.

Responding to reports by Cosatu of an acute trend amongst teachers in some regions to resign in order to access their retirement savings, Muller says urgent action is required to ensure that teachers understand the implication of their actions and that they understand the processes and intent behind the regulatory changes pertaining to their retirement funds.

She says Sanlam is concerned that teachers may not understand the intended changes to retirement fund reforms.

“There is a misperception is that people won’t have access to their money when rules change. But that’s not the case. Firstly, it will be a much more gradual change. Yes there is a day when the changes kick in but it’s only the money that you invest after that that will be governed by the new rules. Any money that you’ve invested already works on old rules.”

For instance, if a person has saved up R500 000 in a provident fund by March 2015, the entire amount and interest can be withdrawn as a lump sum when the person retires years later. Only part of the money that they have saved up from March 2015 will be used to buy a pension product when the person eventually retires. And the new rules would not apply to new contributions of provident fund members who are older than 55 on 1 March 2015.

“It is critical to remember that the intention of the regulatory changes is to help people to provide for an income in their retirement, and not to harm them in any way, says Muller.

Sanlam’s latest Benchmark survey into retirement fund savings indicate more than two thirds of pensioners withdraw their benefits when they changed jobs and mostly used it to fund their living expenses.

“In a country where just 29 percent of people who retire are able to maintain their standard of living, it should be of great concern to everyone to ensure that their retirement savings will last their lifetime.”

These are extremely concerning statistics, says Muller, and everything possible needs to be done to assist teachers to understand the implications of their decisions and to understand the intention and the processes related to the regulatory changes pertaining to their retirement funding.

If you are concerned about your financial position rather than resign speak to a financial adviser who will assist you with proper financial planning to make sure that you are able to meet your retirement needs.