Young professionals, don’t forget to tackle your financial planning admin when moving to a new job.
On average, people change jobs 12 times over the course of their career, with most workers spending five years or less in a job.
Millennials change jobs more often. According to a global Deloitte survey of 10 455 millennials (born between 1983 and end-1994) from 36 countries, 43% said they plan to leave their current job within two years and only 28% had plans to stay beyond five years. My younger brother in the IT industry entered the job market three years ago and has changed jobs four times already.
If you’re in the job market, or about to move to a new job, you’ve obviously thought a lot about the pros and cons of doing so. But have you thought about the financial admin that you’re going to have to tackle too?
Here are some important things to remember when you make the move.
Preserve your provident or pension fund
You need to consult your financial advisor to assist you with the preservation of your provident and/or pension fund into a preservation fund. The funds are preserved for the original purpose of retirement savings. Your financial advisor will assist you with the completion of all the forms and facilitation of the transfer of the pension and/or provident fund into a preservation fund that will suit your investment objectives. The transfer has no tax consequences, unless you wish to make a pre-retirement withdrawal.
The tax on the withdrawal would then be calculated as follows:
Pre-and post-retirement lump sum benefits are aggregated with effect from March 1 2009.
Withdrawing from a pension, provident or preservation fund has long-term negative tax consequences at retirement. Not only do you pay tax according to the withdrawal tax table mentioned above, you will also reduce the tax-free lump sum of R500 000 at retirement. So, your actions now that may seem like the right thing to do might have a negative financial impact at retirement.
What are the financial perks and benefits offered by your new employer?
Does the company offer any of the following:
- Medical aid
- Pension and/or provident fund benefits
- Risk benefits, which include life cover (including spousal and/or child benefit), disability income protection and dread disease.
If the company doesn’t offer these benefits, it’s your responsibility to set them up with the help of your financial advisor. Your advisor should do a complete financial needs analysis (FNA) to determine your current financial position in the event of death, disability, dread disease and retirement. In doing so, the following is considered: current assets and liabilities; income and living expenses and responsibility to dependants. The outcome of the FNA will determine the amount that you need to be saving for retirement and the appropriate cover that you need. The FNA should be done on a regular basis as your circumstances change.
Medical aid – medical aid consultants offer advice on a range of medical aid schemes and gap cover products available on the market.
Pension and provident funds – if these benefits are not provided by your employer, your financial advisor can assist you to set up a range of tax-effective investment vehicles, including a retirement annuity (RA) or a tax-free savings account (TFSA).
RAs – contributions made to an RA are tax deductible to a maximum of 27.5% of the greater of taxable income or remuneration, but limited to R350 000 per annum. The fund selection must comply with Regulation 28 of the Pension Fund Act. This Act prescribes the maximum allocation that the fund can allocate to local and global cash, bonds, properties, equities and other assets like derivatives.
TFSAs – contributions into a TFSA are limited to R33 000 per annum and R500 000 per lifetime. It doesn’t have to comply with Regulation 28, therefore, this can be used to increase your foreign and equity exposure. With both the RA and TFSA, you don’t need the employer/employee relationship. The asset allocations of these portfolios will be set up according to your risk profile, market conditions and investment objectives.
Risk benefits – the outcomes of the FNA will determine how much cover should be taken up for life cover (including spousal and/or child benefit), disability income protection and dread disease. The continuation of group risk benefits from previous employers is sometimes an option too.
As a young professional, you need to make sure that you protect your biggest asset in your working life: your ability to generate an income and to protect yourself against adverse situations, like disability and dread disease. You will not be young forever and one day you will need to live off your savings to maintain your standard of living, which is why retirement savings are so important.
And of course, continuous consultation with your financial advisor is of the utmost importance, as and when your lifestyle changes.