The effects of job-hopping on your retirement

RANDS AND SENSE

Neli Mbara

Job-hopping – defined as spending less than two years in one position – is a controversial subject. It can be an easy path to a higher salary, but can also be a red flag to prospective employers, not to mention to the detriment of your financial goals if you are cashing in your retirement savings every time you make a move.

When changing jobs, whether it be once a year or once every decade, you have to make decisions regarding career growth and retirement plans which affect your long-term financial plans. One of these decisions is “what to do with my retirement fund?”

For many people, the first thing that comes to mind is using their pension money to pay off their debt. Alexander Forbes Member Watch statistics show that 91% of members do not preserve their retirement savings when changing jobs. As we are living in times where most household income is used to finance debt, most people use job-hopping to gain access to their retirement savings, and use this money to pay off debt. However, a quick fix and instant gratification comes at a price, which in this case could be a delay in your retirement plan. Your retirement savings are simply for that, your retirement, to pay you an income once you stop working. Early access of your retirement savings can result in:

Not having enough money at retirement – most of us are already not saving enough for retirement.

♦ Robbing yourself of the compound interest you could have earned from the investment.

♦ Never making up the lost benefit.

♦ Creating a bad habit that will prevent you from achieving your retirement plan and desired income at retirement.

It is easy to cash in your money from a retirement fund at resignation but it is much harder to make up for the lost benefit (capital cashed in plus interest). Calculations show that, depending on your retirement age and investment time horizon, for you to make up the lost benefit you will probably need to double your retirement fund contributions. Since only 6% of the South African population are reported to have accumulated enough to retire comfortably, without having to sacrifice their standard of living, you will most likely have to invest much more towards your retirement fund to make up for the lost savings.

Therefore, leaving your retirement savings invested and preserved in a preservation fund is the recommended option when changing jobs, as this keeps you committed to your retirement plan. Changing jobs is a life-changing event, and it is therefore important that you seek advice from a professional financial adviser who will guide you in your retirement planning, ensuring that your retirement needs are taken care of, by providing solutions that help you to ensure your financial well-being. Mbara is a Certified Financial Planner at Alexander Forbes

FACT FILE

Complaints to the Pension Funds Adjudicator

THE FOLLOWING INFORMATION IS FROM THE OFFICE’S ANNUAL REPORT FOR THE FINANCIAL YEAR ENDING MARCH 2020

COMPLAINT STATISTICS

♦ Complaints received: 11179 (11399 in the previous year)

♦ Complaints disposed of: 9602 (10287 in the previous year)

♦ Formal determinations: 4991 (5319 in the previous year)

♦ Cases found in favour of complainants: 93.6%

How complaints were received

♦ Email: 48.2%

♦ Walk-in: 31.7%

♦ Website: 7.1%

♦ Letter: 6.6%

♦ Fax: 6.3%

MAJOR REASONS FOR COMPLAINTS

♦ Withdrawal benefits (60% of complaints): Many employees leave service and expect their benefits to be paid to them, only to find that their employers have not kept up to date with paying contributions into the fund on their behalf.

Another reason is employers/funds intentionally withholding benefits, which may be lawful in certain circumstances but unlawful in others.

♦ Benefit statements (10% of complaints): Funds are required to send members an annual benefit statement.

By receiving such a statement annually, members would quickly know whether their contributions were being paid into the fund or not. Many funds are still failing to do this.

CASE STUDY: FAILURE OF EMPLOYER TO PAY CONTRIBUTIONS TO FUND

Mr M was employed by Tactpro Protection Services in 2016 and 2017. When he left the company, he was not paid his withdrawal benefit by the Private Security Sector Provident Fund (PSSPF). He provided a copy of his pay slip for June 2017 which reflected a provident fund deduction of R226.85. The PSSPF submitted that Tactpro had been in arrears in paying employee contributions over to the fund.

Tactpro acknowledged that contributions were deducted from Mr M’s salary, but were not paid over to the PSSPF. This was because its clients, which included a municipality, were in arrears with their contract payments, which led to a situation where it could not honour its statutory commitments to its employees.

In her determination, the adjudicator, Muvhango Lukhaimane, said Tactpro had undertaken to remedy the situation and had requested a reasonable time to do so.

“The non-payment of invoices by clients is a real issue in this (security) industry and it normally results in the employer being unable to honour its statutory duty to pay contributions in respect of its employees. Thus, it is a systemic problem in this industry, which prejudices both employer and members … and affects the final benefit payable upon exit from service.”

Tactpro was ordered to pay to the PSSPF the arrear contributions together with late payment interest. The PSSPF was ordered to pay Mr M his withdrawal benefit.

♦ Report released in January 2021.