What happens to your retirement savings if, as may have happened during the pandemic, your company gets into difficulties and either goes into liquidation or is bought out by another company?
The law protects employees
Nashalin Portrag, head of the FundsAtWork Umbrella Funds, explains that when a merger or acquisition takes place, or a company restructures, there are implications for the group benefits that form part of your employment contract.
“That is why there are clear legislative processes that must be followed with regard to employee benefits during a merger or acquisition. Section 197 of the Labour Relations Act facilitates the business transfer, protects employees from being treated unfairly and protects their employment, which includes their employer-provided retirement and insurance benefits,” says Portrag. “The Act determines that the new employer employs transferred employees on terms and conditions that may not, on the whole, be less favourable than those they had with the old employer.”
New employer decides on fund
Portrag says new employers may allow employees to keep contributing to their existing pension or provident fund or decide that they have to belong to a new provident, pension or similar fund.
Transferring employees to a new fund must comply with Section 14 of the Pension Funds Act, which ensures that the transfer of pension benefits is reasonable and fair. It must also comply with the rules of the funds.
Portrag cautions: “It is important to understand that you are not entitled to your withdrawal benefits in such a transfer. If the new employer chooses to participate in same fund as the existing employer, your retirement savings will stay invested in the portfolio you were in before the transfer. If the new employer chooses not to participate in the existing funds, you will be transferred according to Section 14 to the new approved fund chosen by the new employer.”
Liquidation
If your employer liquidates the company, then you will have access to your retirement fund credit, but only after your group scheme has been liquidated from the fund. At this point you have a few options. You can preserve all your retirement savings, which can be done within your existing fund or by moving your fund credit to any other registered preservation or retirement annuity fund. You can also choose to withdraw some retirement savings and preserve the rest until your normal retirement date. When considering the different options, it is particularly important that you talk to a qualified financial adviser, especially to understand how tax will affect you.
Your group risk cover may change
Group benefits, including insurance benefits, are structured according to certain business needs, says Portrag. “These could include the industry the business is part of; the geographical area of the business; prevalence of certain disease or disability trends where the business operates; and occupations of the employees. If a business undergoes fundamental restructuring, such as downscaling or changing its core structure or operating model, the business may revise its group benefit structures to balance benefit levels and value with cost.”
Portrag says that when your employer adjusts the business’s group insurance benefits to lower levels, you might find yourself in a situation where your group cover is no longer sufficient for what your family will need if you were to pass away or become disabled. “That is why some leading employee benefits providers offer solutions that allow you to flex up your group insurance cover according to your individual circumstances,” says Portrag. He emphasises that it is important to review your cover at least once a year to make sure it meets your and your family’s needs.
Portrag adds that sadly, however, where employees lose their jobs as a result of business restructures, many also lose the only insurance cover they have under their employer’s group scheme. He points out that many group insurance policies include a conversion option, which gives you the option to convert to an individual insurance policy without medical underwriting when you leave your employer. “Retrenched employees should seriously consider this option if their employer’s group policy offers it,” he says.
This article first appeared in the March 2022 issue of our free IOL MONEY digital magazine, available here.