The impact of Covid-19 will see many businesses, as well as individuals, face some form of financial distress. Some businesses may need to shut their doors, and this could impact employees who are part of a group retirement saving scheme.
Similarly, individuals who save for retirement in their personal capacity may need to consider a change to their finances in the short term, while balancing the need to stay committed to their long-term savings goal.
Justmoney spoke to Saleem Sonday, head of group savings at Allan Gray, about options to consider for employees (who contribute to group retirement saving schemes) and individuals who’re struggling to keep up with monthly contributions due to a change in personal circumstances:
Tip: Use our calculator to compute just how much you need save for your retirement.
If you contribute to a Retirement Annuity in your personal capacity
For many modern retirement annuities, there’s no fixed amount that you need to commit to for a set investment period. It’s your investment – you decide how much, when and how you would like to invest. You can start and stop contributions as you wish and there are no penalties if you pause contributions.
If you have a financial adviser and your short-term financial circumstances have changed, discuss ways that you can keep committed to your long-term goals even if it means that some of your shorter-term contributions are lower than they might have been under ordinary circumstances.
If you contribute to a Group Retirement Annuity
If you belong to a group retirement annuity (RA), which sees your employer administering contributions to your retirement annuity on your behalf as a condition of your employment, your retirement annuity is still in your name. Your investment will continue in your name even if you leave your place of employment, and it will continue regardless of your employer’s financial situation (although they may cease to contribute).
If your employer notifies you that contributions will cease due to the company shutting its doors, or due to retrenchment or any other reason, you can set up a debit order in your personal capacity. If your contributions are paid with after-tax money, you may be due to tax back at the end of the tax year.
If you belong to an Umbrella Fund
Umbrella pension and provident funds, which club together multiple businesses in a single fund with standardised rules and a single board of trustees, are separate legal entities, and your investment is therefore protected if your employer goes out of business.
Although your membership in an umbrella fund is linked to your employer who pays the contributions on your behalf, your contributions belong to you. During this tough period there are three mechanisms that your employer can explore:
- Temporary member suspension without pay (no salary means no contributions),
- Reduce pensionable salaries; this will, in turn, reduce members’ monthly contributions (subject to the rules of the fund),
- Request temporary suspension of retirement contributions for the employer group.
If the worst happens and your employer’s business shuts down, or is placed into business rescue, and can no longer honour the commitments of the umbrella fund, you’ll usually be given the option of either taking a withdrawal with high tax implications, preserving in the fund or transferring to another preservation fund.
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