A Fin24 user wants to know if she can have a company's provident fund, although she is a contract worker. She writes:
I am working on contract. Can I have a provident fund?
Rowan Burger, head of alternative products at Momentum, responds:
Most employers offer membership to a pension or provident fund, which is compulsory for permanent or full time employees.
However, contractors are generally excluded from this and, therefore, will need to make their own provisions for retirement.
Pension funds are created with a longer view in mind and the temporary nature of contract work means that these individuals are usually excluded from this employee benefit.
There is also a concern that only those contractors, who feel that they have a higher likelihood of needing cover, will choose to be covered by insurance benefits, driving up the cost for all participants.
Therefore, contractors will need to save individually towards retirement in a retirement annuity (RA) to ensure that they retire comfortably and enjoy exactly the same tax benefits as their permanent or full-time colleagues and meet the same retirement savings need.
The reason many employers offer these schemes to employees is that they are cheaper than RAs, but don't always provide the same comprehensive level of cover and security.
Important to consider:
- Permanent employees usually cash in their pension or provident fund when they leave a company and do not re-invest.
This lack of preservation has huge ramifications later in life as individuals will find that they have not adequately provided for retirement.
With an RA, members are forced to save up until the age of 55 or later, meaning that there is a better chance that they will enjoy a comfortable retirement.
- Ensure you save as much as you can, but also select a lower contribution if you are unsure of your future earnings.
It is easy to top up or increase your monthly contribution, but challenging to try move to a lower premium when you have pre-selected a higher value - and this could result in penalty reductions;
- Speak to a financial adviser, who will assist you in selecting an RA that best suits your requirements.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.