It typically takes between 4 and 12 weeks to process a retirement fund pay-out (21 business days at 10X Investments), from the time your last contribution is invested or the required instruction forms are received by the administrator (whichever is the later).

 If you stopped working in November, then your employer has held up the process, but if you still worked a part of December (as your resignation date suggests), then your last contribution would only have been invested at the end of December or early January and your process would not be delayed by your employer handing in the forms in January only.

Cashing In Your Pension Fund

According to Stats SA, the unemployment rate increased to a historic high of 30,1% in the first quarter of 2020.

It is estimated that a further 3 million South Africans have lost their jobs during the country’s nationwide lockdown with more job losses still to come. Losing your income may have been out of your control, but the next steps you take are – and they could dictate your future financial health.

Sherwin Govender, Business Development Manager at Glacier by Sanlam, suggests five things to consider before you cash in on your pension fund.

1. Don’t Rob Your Retired Self

Retirement savings are your money – but they belong to you when you retire. Spending it now could mean that you won’t have enough saved to live on when you retire. Not having enough retirement savings means you will need to find income-generating employment after you retire. If jobs are scarce now, what will the job market look like when you’re 60?

2. Cashing Out Your Pension Fund Is Taxing

You can only cash out your pension fund if you withdraw from the pension fund, in other words, when you resign or lose your job. Losing your job and retiring, however, are two different scenarios:

1. If you retire, you can only cash out up to one-third, and the balance must be used to purchase an annuity
2. If you withdraw (when you find a new job and resign, or are retrenched), you could typically transfer as much of your funds as possible to a preservation fund at a registered financial services provider. Other options would be transferring to a retirement annuity or the new employer pension fund. However, you can cash out the full amount, but the tax you pay on the cash lump sum would be more than if you retired from the fund.

The tax payable when cashing out your pension fund is calculated as follows:

• The first R25 000 is not taxed
• The balance up to R660 000 is taxed at 18% of the amount over R25 000
• The balance up to R990 000 is taxed at R114 300 + 27% of the amount over R660 000
• The remainder is taxed at R203 400 + 36% of the amount over R990 000

3. What You’ll Be Losing in Compound Interest

You’re giving up a lot of the ‘magic’ of compound interest, especially if you cash out 100% of your pension fund now. In the table below is an example of the financial outcomes of three people, Chris, Thandi and Dave, who all lost their jobs and withdrew money from their pension funds.

	James	Thando	Dave
Age at retrenchment	45	45	45
Pension fund value	R1.5 million	R1.5 million	R1.5 million
Amount cashed out	R1.5 million	R100 000	R1.5 million
Tax paid on cash-out	R292 500	R0	R292 500
Amount transferred to preservation fund	R0	R1.4 million	R0
Age when new contributions to new pension fund starts	46	46	46
Monthly contribution to a new pension fund	R2 000	R2 000	R17 300
Growth rate	10% per year	10% per year	10% per year
Age at retirement	60	60	60
Total retirement savings	R728 000	R6.3 million	R6.3 million
Tax-free lump sum that can be cashed out	R0	R400 000	R0

4. If You Need the Money to Pay Debts

Investigate debt counselling or consolidation before dipping into any of your savings or investments. A debt management programme will help you create a debt repayment plan that gets you back onto a healthy financial path. Sanlam offers free debt management assistance; visit our Credit Profile page for more details.

5. Get Advice From a Qualified Friend

It’s human nature to make financial decisions that seem good now but turn out to be regrettable in future. Seek financial advice from an accredited financial planner to guide you through difficult financial times.

“It is important to ensure that you have worked through these considerations before cashing in your pension as a short-term solution as this could have dire effects on your long-term retirement plan”, concludes Govender.

^{Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.}