Like failure, retiring early is no option

In the course of my travels, I meet a lot of demotivated employees with gripes ranging from the state of the economy and job pressures to domestic finances and fuel prices.

So many of them moan: “I wish I could do something else!”The “naughty 40s” say they will quit and do something else when their kids are off their hands. The “nifty 50s” wait until their grandkids are finished school or say: “I can’t resign now because I will lose most of my defined benefit pension fund.”

During the early years of the new democratic South Africa, there were scores of early retirements. Employees were offered the actuarial values of their pension funds and cashed in on attractive tax packages existing at the time.

They evacuated to the new golf estates with plans of becoming indispensable part-time consultants.

Very few succeeded. Today, many are financially distressed as their retirement savings were eaten away by inflation and poor investment returns.

Yes, we have learned that, like failure, early retirement is not an option.

Those who stay employed to 70 do much better. But few employers want to bend “the 65 and you’re out” rule. So how does one stay employed five years longer?

I have seen very few success stories of pensioners starting small businesses or finding good second jobs. Those who start again in their 50s do much better.

But it takes huge guts to walk away from years of service on a defined benefit pension fund. If they could, a vast chunk of South Africa’s teachers would long since have become estate agents.

Today there is little talk of lowering the minimum retirement age. And certainly there shouldn’t be any incentive to cash in retirement savings before 60. But what about allowing the transfer of accumulated pension benefits to a preservation fund, without penalty, at any time after 50?

If I was an employer, I would be looking to replace pension and provident funds with forced contributions to retirement annuity funds. With the tax profiles of all retirement fund contributions on a level playing field by 2014, there is no tax reason to stay with pension and provident funds.

Originally published in the Sunday Times: Money & Careers Tax Talk column.

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