Question

I am moving to a new company where the salary will be higher but there are no company benefits like a pension fund or medical aid.  I am not sure what I should do with my current pension fund and replacing my current benefits.

Answer

There are a couple of factors you need to consider:

Retirement savings

As you do not have a retirement fund, at your new company, it is important that you preserve your current benefits.  You have two main options here:

• You can leave the money in the old fund.

The advantage here is that the fees are low.  The downside is that you are often restricted with the number of funds that you can invest in.  Not being optimally invested can result in your retirement fund not growing by as much as it could.  If this potential growth is higher than the cost savings, it can have a significant impact on your long-term retirement savings and cost you over the longer term.

If you want to keep the money in the existing fund, find out what portfolios are available and what their 5- and 10-year returns look like.  Compare these with the returns of a typical portfolio that you can access in the retail market and see if the cost savings make sense.

• Move the funds to a preservation fund

 This is a popular solution.  You can access all the retail retirement funds and if well managed, your retirement fund should grow at an optimal level till you retire.

As the 2-pot system only came in late last year, the bulk of your retirement savings should not be impacted by it.  This means that for the pre-September 2024 funds, you will be allowed to make one withdrawal from the preservation fund should you need to access the funds in an emergency.

In addition to preserving your retirement benefits, you should invest a percentage of your monthly salary into a retirement annuity each month.   As the salary in your new job will be higher, your tax liability will also be higher.  The retirement annuity will help reduce this tax liability while building up your retirement savings.

Medical aid

As you will be losing the company medical aid, you should take out a medical aid in your own name.  You usually need to do this within 3 months otherwise the new medical aid could apply restrictions to the cover on any pre-existing conditions that you may have.

Life insurance

Your old company may have group risk benefits.  These could include

• life cover
• lump sum disability cover
• income protection
• critical illness cover

Many funds allow you to take over this cover in your own name through what is called a continuous assurance option.  The advantage here is that there is no medical underwriting, so even if you have a medical condition that could preclude you from getting cover, you would be able to get covered. You typically need to exercise this option within 30 or 90 days.

The continuous assurance rates are usually higher than the normal rates so if you are healthy, you may be better off getting cover through the normal channels.

You need to make a number of important decisions when you change jobs.  I would recommend that you enlist the help of a trustworthy financial advisor to help you make the right calls as these will have long-term consequences.