A Fin24 reader asks:
I have a R55 000 loan and a R20 000 credit card. I am
leaving my current company for a new job. But I am not sure if I should take
out my pension fund pay-out to pay off the two bills or reinvest the pay-out.
Michelle Benatar of Benatar Consultants responds:
I would advise you to transfer your pension fund into a
preservation plan as no tax is payable on your existing pension by doing so.
Moreover, you are preserving and potentially growing your retirement benefits.
As for your existing debts, I would reduce them on a monthly basis by
exercising financial discipline and avoiding unnecessary expenses.
Jackie Robinson, MD of The Art of Wealth, responds:
I would also strongly advise you not to withdraw from your
pension fund but transfer it into a preservation plan and then withdraw a
portion of your fund to cover your existing debt.
(Preservation funds are a way of preserving savings until
retirement. Transferring your money into a preservation fund offers you the
flexibility of making a withdrawal from the preservation fund before
Debbi Netto-Jonker, co-owner of NettoInvest, adds:
Legislation has changed, which removes the requirement of
only using the preservation funds for which your former employer is registered
as a participating employer. This provides flexibility to transfer the
retirement fund investment value into a preservation fund of the employee's
choice. But this still needs to be communicated to your ex-employer.
Making no decision as to your retirement savings may cost
you dearly. If retirement fund money is not transferred into a preservation
fund or a retirement annuity within six months of the date of exit, the
Receiver of Revenue will knock off its dues in income tax and you will be paid
the balance in cash.
Getting this reversed can be a painful and lengthy exercise.