3 reasons why you should never cash in your pension fund

South African change jobs on average 7 times in the working phase of their lives and 95 percent end up without sufficient funds when they retire. The main reason is that they cash in their pension funds instead of preserving them every time they move jobs.

Every time you cash in your pension fund you blow a huge whole in your provisions towards your financial freedom in the future. Financial freedom takes place when your investments can provide you with a sustainable income for the rest of your life. Your pension is the most important contribution to this as it is probably the biggest investment you’ll make over the longest period of time.
Cashing in your fund has dire consequences that you should be well aware of:
It costs you more than you realise.
Assuming you save with 30 years to retirement and you cash in after the first 10 years. The monthly amount needed to catch up to the same value at retirement is 3 times. If you cash in after 20 years, the amount needed to catch up is R10 times.
You also give up tax payable to SARS which if left in your fund boosts the compounding effect on your money. The bigger the amount the bigger the compound over time.
Cost of living
If you cancel your pension to pay off debt then you just are kicking the can down the road. Having too much debt in the first place is a result of you living beyond your means. Cashing in your pension is effectively turning off your income at retirement. If you cannot afford your lifestyle now whilst you are earning a salary you certainly won’t afford to live when you retire. You have to bite the bullet and pay off your debts with the income you earn after savings. It’s the only way to arrive at financial freedom into the future.
Protected investment
Retirement funds are inalienable. Which means your creditors cannot touch the money. This is a useful consideration for those wanting to go into business for themselves and intending to cash in their pension fund as an investment into their business. You would do well to use the banks money instead of yours. You get the best of both worlds. You retirement funding stays on track and if the business goes bust then you still have your funds for the future.
It stands to reason that cashing in your pension fund is not the first thing you do when you leave your job. On the contrary it should be a measure of last resort.

Is your will valid?

An invalid will can lead to unnecessary delays and costs when it comes to winding up your estate.The problem worsens as frustrated beneficiaries and angry members of the family have to deal with the lengthy process of dying “Intestate.” That is without a valid will. Executing an estate is so much easier if the will is prepared properly.


Here are some important points to ensure that your will is valid.

  1. You must be 16 years or older and mentally capable to make a valid will.
  2. You must sign your will at the end of the document. If it consists of more than page then it should be signed at the end of each page.
  3. You should sign you will in the presence of two witnesses over the age of 14 who are competent to give evidence in a court of law.
  4. The witnesses must not be benefit in term of the will. So they may not be beneficiaries, executors or trustees.
  5. The witnesses must sign the will in the presence of you and the other witnesses.
  6. The will must be dated to ensure that the executor of your estate has a clear understanding of the latest will.

The time that it takes to ensure that you have a valid will is minuscule compared to the time and effort it takes to wind up an estate without a valid will.

Make sure that your will is valid. Your beneficiaries depend on it….


Electricity… “Pay as you go”… the way to go….

The rising costs in tariffs, rates and taxes are a reality which households will have to face head on as there are no magic wands to wave to make them go away. We will have to get down to understanding theses expenses and how much they eat into our monthly incomes. Let’s take the recent hike in electricity costs and see how we can manage this a bit better.

The only real way to get on top of your electricity bill is to analyse how much you use and at what cost. This follows a fundamental principle in financial planning – “If you can measure it you can manage it.”

Delivery costs more than the product
Studying my electricity account reveals a shocking reality. Of the total amount payable on my account only 48% of the bill was for electricity and the other 52% was for service charges and tax. So the cost of delivery of electricity is more than the cost of the product. Nothing we can do about the other costs. Either way we have to pay….
Change your behaviour?
To take charge of your electricity costs  you will need to monitor the usage very carefully understanding which appliances are the main culprits. Once you understand the cost per unit you will then be able to change behaviours in the household to limit the damage. It stands to reason that the only way forward is to convert to a “Pay as you Go” system.
This is clearly the most practical way to realise how you are doing with the consumption of your power in the home. It is realtime monitoring  as apposed to the historic approach of paying at the end of the month on receiving your account.
So, changing to “Pay as you Go” will enable you to keep real with your consumption and help you to manage things because you will be topping up your household during the month. It will give you an appreciation of how easy electricity can be misused. Especially, if you are buying it more frequently than you care to.
Perhaps a good idea to start off buying smaller quantities which will help you measure things more closely.
Brace yourself
At the current rate that the cost of electricity is increasing, we will have no option but to make a provision for it in our retirement funding objectives, added to the provision we have to include for medical aid. If you can’t afford it now it will be even worse in the future.
Using the rule of 72, Eskom’s proposed tariff increase of 25% means that the cost will double in (72/25 = 2,88) just under three years. If it carries on at this rate then a major portion of you pension will go towards keeping the lights on during your retirement.


World Economic Forum …so what do we do?

The recent World Economic Forum on Africa held in Cape Town has an important place for all countries on the continent. It aims to synergise the efforts of Africans to improve their economies.

So how do we as South Africans benefit from this illustrious event? It becomes an opportunity for us to reflect on ourselves and ask questions pointing to getting our own house back in order.
Just like the approach to a financial plan we need to ask the questions:
Where are we now?
To get our own house back in order we need too recognise that we are lagging behind in terms of economic fundamentals. South Africa is lagging as an economic leader in Africa especially as the region has been growing around 2-3% faster than the rest of the world.
Reserve Bank leading business economic indicator for March 1,6% after a drop in February of 2.3%.
The reserve bank has also hinted that the interest rate is likely to move upwards within the next few meetings.
The rand has weakened to R12,58 to the dollar.
The economy has shrunk in the last quarter to a GDP of 1,3% quarter on quarter from a previous quarter of 4,1%.
Unemployment has risen to 26,4%. The worst in 12 years.
We don’t have enough electricity to keep up and…and… and…
Where do we want to be?
We need real sustainable growth to bring us back to an economic powerhouse in Africa.
How do we get there?
A solution could be found in infrastructural development which is hindering growth. Building schools, houses and hospitals (just the essentials) creates employment which in turn uplifts the quality of life of the people and improves the standard of the country. South Africa is far better off than other countries in Africa but we should keep focussed on improving and maintaining what we have to keep ahead. This will keep many of our people employed and put us back on the path to economic growth.
Easier said than done, I guess. But then in difficult times great vision and leadership is needed more than ever to pull through.