'Worst time to cash in savings'

Johannesburg - With local and global equity markets having fallen dramatically over the last few months, it is more important than ever that retrenched workers do everything in their power to preserve their retirement savings.

In a statement on Thursday, Old Mutual's Seelan Gobalsamy said that following the retrenchments announced by several local companies over the last few weeks, many of those who had lost their jobs were eyeing their retirement fund savings as a source of funds while they looked for work.

"This is the worst possible time to cash in your retirement savings," he said.

"Members exiting funds and taking their benefits in cash risk locking in the dramatic investment losses of the last few months," he said.

Workers should rather transfer their benefits into retirement annuities or preservation funds so that they give themselves the opportunity to take part in future investment market recoveries, he added.

Gobalsamy said while it was understandable that retrenched workers needed cash to survive, he suggested that they explored all other avenues before looking at their retirement fund assets.

"Cashing in your retirement fund assets might seem like a good option in the short-term, but the long term implications could be disastrous as you will almost certainly be left without sufficient income at retirement."

He said it was estimated that less than six percent of South Africans could afford to retire comfortably.

This, he added, was at least partly due to people taking their retirement fund assets in cash when changing jobs.

In fact, recent research showed that more than two thirds of members resigning from their jobs prior to normal retirement age took their retirement savings in cash, rather than transferring them to a retirement annuity fund, preservation fund or new employer's retirement fund.

Gobalsamy said workers should also study the tax implications of exiting their retirement funds as these varied depending on what they wished to do with their savings. He added that it was the responsibility of retirement fund trustees to encourage members to keep their retirement fund savings invested for as long as possible and not cash them in when exiting their jobs prior to retirement age.

According to research, while 76% of all funds interviewed provided members with pre-retirement counselling, 50% offered such advice only one year before retirement, and only two percent offered regular annual input.

However, 91% of funds interviewed considered the counselling to be effective.

"Now, more than ever, it is crucial that employees understand all the options available to them when it comes to their retirement fund assets.

He cautioned that retrenched workers should seek professional advice before making any decisions on their retirement savings.

- Sapa