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COVID: Will you lose your pension if your employer closes shop?

By Athenkosi Sawutana

Ever since Covid-19 made its way to our shores many people have found themselves out of work. Some companies are closing, leaving the workers stranded. But are they going down with your pension?

In this part of our Covid-19 series, we find out from the Financial Services Conduct Authority (FSCA) if you can still access your retirement savings if your employer closes shop.

Tip: We can help you find a trustworthy retirement fund. Click here and a consultant will be in touch.

You’ll never lose your pension

One of the big misconceptions about losing your job is that you’re going to lose the retirement savings you’ve been working hard for. But that shouldn’t be one of your worries.

Retirement funds are legal entities distinct from the company you work for. Therefore, even when the company closes down, you as the member of the fund won’t lose your retirement savings or benefits because the contributions and the returns achieved thereon have been paid into the fund, says Olano Makhubela, divisional executive of retirement funds at the FSCA.

Makhubela says these benefits are protected by the Pension and Provident 4Funds Act. 

READ MORE: My employer ceased contributing to my pension – what now?

What can you do to access your pension

Workers are required to submit withdrawal claim forms to the pension fund if the company is closing, says Makhubela.

Prior to the closure of the company, the company ought to have retrenched the workers, and the employers would generally complete the withdrawal claim forms indicating their retrenchment which would in turn be submitted to the administrator of the retirement fund, he says. 

The details of the administrator will appear on the last benefit statement received by the member.  If you have not heard from the fund, contact the administrator to enquire about the payment of the benefit and all the other options available to you.

If members enjoyed risk cover in the form of death and disability cover, it would be wise to look at converting the cover to individual cover so that this risk cover is not lost upon the termination of employment.  

You can still continue to save for your retirement

If you’re starting employment elsewhere, you can join your new employer’s retirement fund. If you’re not employed, you can consider retaining the benefits in the fund or transferring your money, or part thereof to a retirement annuity fund or a preservation fund and also continue contributing to it, says Makhubela. 

A retirement annuity is another savings vehicle that is suitable for people who don’t have access to the employer funded provident or pension fund. On the other hand, a preservation fund allows you to save the proceeds of your pension or provident fund. Be aware that transferring your funds from one savings vehicle to another comes with costs, so it’s important to consult a financial adviser before doing so.

Alternatively, you can open a tax-free savings account. You can go to any financial institution but compare the benefits and set up a debit order. However, you must be aware there are restrictions with TFSAs. You won’t be able to save as you much as there’s a limit to what you can put in. Plus, you must be disciplined enough to not withdraw your savings before the maturity date as you can’t replace what you’ve withdrawn.   

“Workers are encouraged to preserve their retirement savings as much as they can to enable decent retirement,” says Makhubela. 

READ MORE: What happens to your retirement when you get a new job? 

Use our calculator to see how much you’ll need for a dignified retirement.

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