what happens When you leave an employer Your retirement savings are one of the most consequential financial decisions most South Africans make – and one of the most commonly mismanaged.
In this podcast conversation with Mpho Chitapi, Michael Rossouw, Senior Investment Advisor at 10X Investments, explains what should happen, what happens most often, and where the costs lie.
When an employee resigns, their pension or provident fund does not automatically pass to them. In default the money is often left in the old employer fund, or taken out in cash during the transition.
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The cash option is the most harmful. Rossouw cautions against this, not because money is needed less in the short term, but because removing capital disrupts compounding in a way that is extremely difficult to recover from later, even at higher incomes in the future.
One point clearly stated by Rossouw is worth reiterating, because it is widely misunderstood: under the Pension Fund Act, individuals do not have a pension or provident fund. Only a company can set it up, and employees are members of the employer-sponsored fund rather than its owners. When employment ends, the relationship with the fund also changes.
Individuals may have retirement annuities and conservation funds. A protection fund is a means into which an employee can transfer their accumulated retirement savings when they leave a job, and have direct control over how the money is invested and what they are paid to manage it.
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That control matters. A conservation fund lets the holder choose an asset allocation to suit his or her risk profile and time horizon, and integrate with a retirement annuity or new employer fund as part of a single retirement plan. Leaving money in the old employer fund doesn't provide any of those benefits.
Rossouw's sharpest warning is on fees. Even a well-structured retirement plan can be quietly weakened by costs that grow in the same way that returns grow – only in the wrong direction. He urged savers to inquire about the effective annual cost (EAC) of any product they sign up for. A difference of 1.5 percentage points in annual fees may seem minor, but over a working lifetime it could ultimately erode a meaningful portion of a retirement balance.
Rossouw says higher fees are not always justified by better performance, and savers should be especially cautious about committing to higher-cost products on longer contracts.
it's your money
He focuses more on the role of online calculators and AI-powered tools, which have made it easier than ever for individuals to model their own retirement scenarios. He says the tools are useful, but their inputs and assumptions should be carefully examined – and the outputs questioned rather than accepted at face value.
The underlying message is simple. Retirement planning when changing jobs does not require expertise. It requires attention, an understanding of the vehicles available, and a clear vision of what the fees will cost over time. The decision taken at the point of resignation – quit it, transfer it or cash it in – is one of the most important decisions a person makes for his or her future.
Ultimately, it's your money.
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