Support for NMG Umbrella SmartFund members approaching retirement

Retirement funds are required to provide members with retirement benefits counselling (“RBC”). RBC is not advice but rather providing relevant information so that a member can make an informed decision. It can be provided in person or in writing.

Members of the NMG Umbrella SmartFund typically receive RBC information in written material like the fund’s member booklet, and the booklets that explain the options when leaving the fund.

The decisions you make as you approach retirement are critical and have far reaching implications once you have retired. In 2024, the fund’s trustees arranged for representatives from NMG to contact fund members within two years of normal retirement age to discuss and explain the available options.

To support this conversation, members receive a personalised statement with information about the available annuity options, the value of the fund credit benefit and the expected income after retirement. The benefit counsellor contacts the affected members before sending the statement and offers to meet to discuss the statement. If you are approaching retirement and are contacted by an NMG benefit counsellor, you are encouraged to meet and make use of the available information.

Explaining the two main types of pensions available at retirement

At retirement, you should be able to take a part of your fund credit benefit in cash and will need to use the balance to buy an annuity (pension) that gives you a monthly income.

There are two main kinds of annuity (pension): a “living annuity” and a “life annuity”.

Living annuity:

A living annuity is an investment where your retirement benefit is invested to provide you with an income after retirement.
Each year, you choose how much income you want to take from the investment. The minimum that you can draw down as income from the living annuity part of the annuity is 2.5% of the total investment value each year.
The annuity provider will apply the maximum drawdowns provided for in legislation and regulation.
There is no fixed pension increase as the amount you draw as an income is your choice.
You can’t take the benefit out of the living annuity while you are alive, but any benefit left in the living annuity will pass to your nominated beneficiaries when you pass away.

Life annuity:

The life annuity will pay you an income for as long as you live.
You can choose for your pension income to be paid for a guaranteed period. Should you die prematurely, the pension will continue to be paid to your spouse or beneficiaries for the remainder of the guaranteed period.
You can also choose that the pension income be paid to your spouse for their lifetime if you pass away.
Your increases can be linked to inflation, be a fixed percentage or be linked to the investment returns of the portfolio you are invested in. The amount that you will get as a starting monthly pension income will differ depending on the option you choose. When you buy the annuity from the annuity provider, you will decide how your future pension increases will be calculated.
Although this type of annuity pays as long as you are alive, there is an option to include a guarantee period after your death, where for example the pension would be continue to be paid for a period after your death, or continue to be paid to a spouse for example.

The key difference between the two types of annuities is where the risk lies. In a living annuity, you can easily run out of money if you draw too much income too soon. If your income level is not sustainable or if you live longer than expected, you can deplete your capital while you still need an income. Your income needs to be carefully managed in relation to the returns being earned. A life annuity will pay you an income for life that never decreases, because the insurer takes on the risk of paying you for as long as you live.

Recent research shows that a combination of the two types of annuities may be needed. A registered financial adviser can help you decide on the most suitable approach for your own circumstances.

Fees are Fees, Not Really.

Market volatility is a fact of life that fiduciaries cannot control. However, there is one variable entirely within the control of trustees and employers, the cost of participation. While a 1% fee might seem negligible on an annual statement, over a 40-year career, it is the difference between a comfortable retirement and a financial crisis.

The Mechanics of "Negative Compounding"

In retirement savings, time is your greatest ally, but fees are your most persistent enemy. We often speak of the magic of compound interest, but fees work in the exact opposite direction. Every Rand paid in fees is a Rand that is no longer earning returns.

Actuarial data shows that a seemingly small 1% difference in annual fees can reduce a member’s final retirement pot by 20% to 25%. This directly impacts the Net Replacement Ratio (NRR) which is the percentage of your final salary that your savings can replace as a monthly pension. If your goal is an NRR of 75%, a high-cost structure could silently erode that to 55%, forcing a significant lifestyle downgrade exactly when you are most vulnerable.

The Myth of the "Free Lunch"

In a competitive market, service providers often market "zero-fee" administration or heavily discounted consulting. As the saying goes, there is no such thing as a free lunch. In an integrated pricing model, costs are rarely eliminated; they are merely shifted.

A "free" service is often a psychological nudge to obscure higher margins elsewhere, such as in the Total Expense Ratio (TER), the annual percentage of assets used to cover investment management and operational costs. If a service appears free, fiduciaries must interrogate where the provider is recovering their margin. Failing to "unbundle" these costs. separating administration from investment management, leaves members at risk of cross-subsidising hidden inefficiencies.

Comparing Apples with Apples: The RSC Standard

The greatest barrier to fair pricing is "information asymmetry" which is where providers know more than the clients they serve. For years, comparing different funds was nearly impossible because of fragmented disclosure.

To fix this, the industry should use the ASISA Retirement Savings Cost (RSC) Disclosure Standard. Unlike a standard TER, which only looks at the investment level, the RSC is a holistic tool. It forces providers to break down costs into four clear pillars:

Investment Management: The cost of the "engine" (including performance fees).
Administration: The cost of record-keeping and member systems.
Advisory: The fees paid to consultants or brokers.
Other: Regulatory levies and audit fees.

For trustees, the RSC is the only way to ensure an "apples-with-apples" comparison. If a provider cannot or will not provide an RSC-compliant breakdown, it should be viewed as a major governance red flag.

The "Two-Pot" Pressure

The regulatory environment in South Africa has again become more complex, notably with the implementation of the “Two-Pot” system. This system aims to protect long-term savings while providing short-term liquidity, and the administrative re-engineering required prior to implementation was significant.

Administrators face higher costs for system upgrades and member education. Fiduciaries must ensure these costs are managed with discipline. The implementation of new laws should not be a "blank cheque" for service providers to permanently increase their fee structures.

The Fiduciary Charge

Trustees and employers are the last line of defence for member wealth. Effective fee stewardship requires moving beyond passive oversight. It demands:

Unwavering Transparency: Insisting on the RSC standard.
Critical Interrogation: Looking past marketing labels to find hidden costs.
Continuous Benchmarking: Ensuring the benefits of scale are passed to members, not absorbed by providers.

In the South African retirement industry, value for money is not just a negotiation tactic; it is a moral imperative. By challenging every basis point, fiduciaries ensure that more of a member’s hard-earned money stays where it belongs, growing for their future.

Most South Africans are unable to retire: Here’s why

With studies like the 10X Retirement Reality Report showing that only around 6% of South Africans are making provisions to retire comfortably, retirement is out of reach for the other 94%.

However, Trevor Kingsley-Wilkins, Head of Retirement Fund Consulting at NMG Benefits, says that people’s inability to maintain their current standard of living during their retirement is nothing new and does not reflect a lack of concern about the future. Instead, it reflects a complex mix of financial pressure, behaviour and habits, and structural challenges.

The ability to save is constrained
For many households, the biggest barrier to saving is immediate financial pressure. “The rising cost of living leaves little room in monthly budgets and, when money is tight, long-term savings are often postponed. Retirement sits far in the distance while housing, transport, children’s education, and daily expenses demand attention now,” says Kingsley-Wilkins.

Human behaviour also plays a role. Saving for something that will only happen 30 or 40 years in the future requires discipline and patience. Most people find it difficult to prioritise distant financial needs when faced with immediate goals and everyday spending decisions.

And then there is the growth of gambling and gamified spending platforms. According to Stats SA, gambling in South Africa has become a R1.5 trillion industry, up by 1,400% since 2018, with betting accounting for 1.6% of total household spending in 2025. The implications are clear: millions of people are wagering their disposable income rather than allocating it to savings.

Kingsley-Wilkins says that workplace structures also influence saving behaviour: “Some employers provide formal retirement funds and risk benefits that create an automatic savings structure. Others offer cost-to-company packages where employees must manage retirement contributions and insurance themselves. And, while this flexibility can be appealing, it can also leave employees without the discipline that structured retirement savings provide.”

Financial education is lacking
Retirement planning comes with its own language and concepts, and this complexity can further discourage engagement. Terms like replacement ratios, contribution structures, and compound growth can create a sense of overwhelm – not to mention the differences between pension and provident funds, and life and living annuities. When the system is difficult to understand, disengagement becomes the norm.

Kingsley-Wilkins notes that bettering retirement outcomes requires action from employers, employees, and financial advisers alike.

“Financial education must become more accessible and more practical,” he says. “Information should be simple, relatable and delivered in formats people engage with. Story-based learning, mobile platforms, and multilingual content can make financial literacy easier to understand and apply in daily life.”

Financial guides like NMG’s SmartAlec, which is an on-demand, easily accessible and understandable WhatsApp channel, demonstrate how financial education can reach broader audiences. Available in several official languages, it translates complex concepts into practical knowledge.

Starting young is imperative
Earlier engagement is equally important. Younger employees who are just beginning their careers can ensure the best outcomes, because even modest contributions can grow significantly when compound growth has decades to work. While the two-pot system enables South Africans to withdraw one third of their retirement savings once a year, administrators and employers have a responsibility to help members understand the long-term implications of such withdrawals.

Employers also have an important role to play. Workplace retirement funds create a disciplined structure that encourages consistent saving. Risk benefits such as life and disability cover provide an additional layer of protection by safeguarding income and supporting families if something goes wrong, helping to ensure that they are still to meet their saving commitments.

“Professional financial advice remains essential. Retirement planning is not simply about putting money aside. It requires balancing savings, insurance, and long-term financial goals in a way that fit individual circumstances,” says Kingsley-Wilkins, who also notes that some challenges cannot easily be solved.

“Starting to save for retirement at age 50 is simply too late to build meaningful capital. Economic pressure will continue to shape household budgets for many South Africans. Human behaviour, particularly the tendency to prioritise short-term needs, is difficult to change. Not every employer will offer formal retirement benefits. These realities make early planning and structured financial advice even more important.”

Retirement may seem out of reach for many people, but this does not make the goal impossible. “The earlier financial planning begins, the more powerful it becomes,” says Kingsley-Wilkins. Making long-term saving part of a monthly budget and working with a qualified financial adviser from an early age can be the difference between future uncertainty and lasting financial security.”

NMG Benefits sees surge in savings pot withdrawals as new tax year begins

As South Africa enters a new tax year, retirement fund members continue to make active use of the savings pot introduced under the country’s two-pot retirement system. NMG Benefits reports that the early weeks of the new tax year have already seen a noticeable increase in withdrawal activity, highlighting both the growing adoption of the system and the important role of digital platforms in enabling access.

Since the implementation of the two-pot retirement framework, NMG Benefits has recorded 113,640 savings withdrawal applications, reflecting sustained engagement from retirement fund members across its administration platform. Of these, 13,555 applications were submitted during the first two weeks of March 2026 alone, indicating a strong start to the new financial year.

To date, R1,060,513,746 has been paid out to members through savings pot withdrawals.
According to Siphamandla Buthelezi, COO and Executive Head of Platforms at NMG Benefits, the trend reflects the financial realities facing many South African households, while also demonstrating how members are adapting to the flexibility offered by the new retirement framework.

“As we kickstart the new financial year in South Africa, we are seeing members accessing their savings pot earlier than in previous years. While the two-pot retirement system provides valuable flexibility during times of financial strain, it remains important for members to remember that these withdrawals come directly from their long-term retirement savings,” says Buthelezi.

Early March data suggests that member behaviour continues to evolve as familiarity with the system grows. Withdrawal applications received in the first two weeks of March 2026 are already 1,475 higher than during the same period in March 2025, signalling that members are increasingly making use of the savings pot earlier in the tax year.

Another clear trend emerging from the data is the rapid adoption of digital channels. NMG Benefits reports that more than 93% of all savings pot withdrawal requests submitted in March 2026 were processed through its WhatsApp-based functionality, which includes built-in validation checks, automated processing, and real-time notifications to members.
“Digital engagement has been critical in allowing us to manage these volumes efficiently,” adds Buthelezi. “Automation and built-in validation allow members to submit requests quickly while ensuring the integrity and accuracy of every transaction.”

As the two-pot retirement system continues to mature, NMG Benefits says it will continue monitoring member behaviour and utilisation trends to better understand how South Africans are balancing short-term financial needs with long-term retirement outcomes

A refresher on the two pot system

Since the two pot system was introduced effective 1 September 2024, members of retirement funds can withdraw money from their savings pot within the fund once every tax year, if the balance in the savings pot is at least R 2 000. It’s important to understand the implications of withdrawing from your savings pot.

A reminder:

Your vested pot holds net contributions to the fund to 31 August 2024 and net investment returns on that. If you started saving for retirement after 1 September 2024, you may not have a vested pot.
Your savings pot includes the amount that was allocated to the savings pot on 31 August 2024 (10% of what you’ve saved by 31 August 2024, up to a maximum of R30 000), together with one-third of the contributions to the fund made after 1 September 2024, and net investment returns on that amount.
The retirement pot holds two-thirds of the net contributions made to the fund for you from 1 September 2024 and net investment return on that.

Impact on your retirement savings

If you take a withdrawal from your savings pot while you are in employment, then it will come out of the savings pot, and the pot will hold less. If you take money out of the fund in cash, it is less likely that you will have enough money to retire.

If you choose to take some of your benefit in cash, you will have to save for your retirement from the start again and you may not be able to stay on track with your long-term financial goals. It’s strongly recommended that you preserve your benefit for its original purpose – providing you with an income in your retirement.

Statistics consistently show that very few South Africans have enough money saved to provide them with the income they need in retirement and that, in many cases, this is because members have taken cash out of the fund before retirement. You will need to rely on your own savings, and especially the savings you make through your employer’s retirement fund, to support you in retirement.

Many South Africans are forced to retire earlier than they had planned, they live longer (thus need support for longer) and inflation takes its toll. If you want to maintain the same standard of living in retirement that you had when you were working, you are going to need a sizeable amount of money. Taking cash out of the fund will not help you to retire comfortably.

The effects of taking a savings withdrawal on your retirement savings

The administrator has a tool to help you assess whether you are on track to retiring comfortably. If you are considering taking a savings pot withdrawal, it’s a good idea to use the tool and see what effect the withdrawal will have on your retirement savings. You can access the tool

here - https://nmg-retirement-next.sctechnology.co.za/

In the graph above, you can see the effects on your retirement income if you take withdrawals from your savings pot, or if you take your savings withdrawal benefit if you resign and take the benefit (assuming you resign every 7 years):

The blue line shows your retirement savings if you never take a benefit from your savings
The orange line shows your retirement savings if you take a benefit from your savings pot every five years, and
The grey line shows your retirement savings if you take a benefit from your savings pot if you resign every seven years.

Tax implications

Any amount you withdraw from your savings pot forms part of your taxable income for the tax year and will be taxed accordingly. Withdrawals from the savings pot are taxed at your marginal tax rate, which is the highest tax rate you pay on your income. Since your savings pot withdrawal is added to your income, the withdrawal can also push your earnings into a higher tax bracket, leading to even more tax being payable.

Any other tax that you owe SARS will also be deducted from any savings withdrawal benefit before you receive it. You will also pay an administration fee on the withdrawal benefit. You may therefore receive less money than you expected, if any.

Before taking a savings pot withdrawal, it’s a good idea to get advice from a registered financial adviser.

An expert adviser can help you reach your financial goals. They can help you create a roadmap so that you are able to make objective and unemotional decisions around money issues. They can also help you understand if you are on track financially and if not, how to get the most from your hard-earned money. A financial adviser should be able to help you with your overall financial planning – for example, setting a budget, choosing the types of investments that would work for you, tax and estate planning and ensuring that you are adequately insured. A financial adviser will be able to help you if you need advice or if you would like to understand the effects of taking a savings withdrawal benefit.

How to manage your first pay cheque to retirement

For many women, the path from receiving a first salary to securing a comfortable retirement can feel like a long uphill journey. Factors like the gender pay gap, single parenthood and extended family responsibilities, and potential career breaks due to motherhood, compound how difficult it can be to save and invest for future financial stability.

Natasha Huggett-Henchie, Consulting Actuary at financial advisory firm NMG Benefits, says that seeing where you want to be at retirement age, and then being disciplined about what it will take to get there, are crucial. “Ideally, your very first pay cheque should also be the source of your very first saving contribution. The key is to make the commitment when you start working, so that you become accustomed to not even seeing the money that you are putting into your savings.”

Why is this early start so important? The answer is simple: compound growth. The first rand you invest can be the biggest by the time you retire. Setting up a debit order that moves 10% to 15% of every pay cheque into a secure retirement savings vehicle is a commitment that will stand you in good stead down the line.

Managing debt is another crucial step. Huggett-Henchie recommends paying off high-interest debt, such as student loans or credit cards, and then redirecting those monthly payments into your retirement fund. And then, there is the emergency fund every woman should have. Always having enough money set aside to cover at least three months’ living expenses provides a buffer against unexpected costs like urgent car or home repairs, or medical emergencies.

Insurance also plays a critical role in protecting your financial independence. While many South Africans hold multiple funeral policies, Huggett-Henchie cautions that this can be unnecessary and expensive. “There are more efficient ways to cover your immediate family, which can significantly reduce premiums,” she explains. Further, income protection and disability cover guard against the risk of being unable to earn an income due to temporary or permanent illness or disability. And again, the sooner you start, the better off you will be. “The younger you are when you take out this kind of cover, the less expensive it is – and you are protected against possible exclusions due to ill health if you apply later in life.”

As you progress, investing wisely is like packing the right supplies for the journey ahead. Unit trusts offer a good starting point, allowing for steady accumulation of wealth with manageable risk. The trick? Start small and increase contributions as your financial situation improves.

Huggett-Henchie also advises that women avoid delegating investment and financial decisions to their partners. Practical steps for being informed and involved include maintaining individual bank accounts alongside a joint household account, and discussing shared finances. Having an antenuptial contract with accrual is another key measure. This protects your personal assets and savings, especially in the event of divorce or financial challenges relating to self-owned businesses.

Throughout this process, working with a trusted financial adviser is like travelling with an experienced guide. A professional adviser can help you navigate savings, investments, insurance, and estate planning. Building a long-term relationship with an adviser ensures your financial roadmap is continuously optimised for your changing needs and life stages.

Finally, creating a legal will is a vital milestone on your journey. It ensures your estate is handled according to your wishes and provides certainty and protection for your loved ones.

The road to retirement is rarely smooth. It involves crossing bridges, navigating detours and, occasionally, repacking your suitcase to lighten the load. But, setting a clear course early, saving every month, and seeking expert guidance, women can steadily advance towards being able to enjoy a secure and dignified retirement, say Huggett-Henchie

Closing the retirement savings gap

South Africans have a retirement savings problem. Research shows that only six out of every 100 South Africans will be able to retire comfortably. On top of that, Deloitte reports our national savings rate is just 0.5%; far lower than most emerging economies. In other words, many of us are heading towards retirement with too little put away.

For women, the challenge is compounded by the gender pay gap. South African women typically earn 23% to 35% less than men for the same work, all while juggling similar bills, debt, and family responsibilities.

“It’s a double hit,” says Natasha Huggett-Henchie, Consulting Actuary at financial advisory firm NMG Benefits. “You’re working with less income from the start, which makes it harder to save, but you also need your retirement savings to stretch further because women tend to live longer than men.”

So, how can women start turning the tide? Here’s a practical, do-able plan to help you close the gap and build a stronger retirement future.

Make retirement saving non-negotiable: Treat your future self like you’d treat an essential household bill. “Building your retirement fund is a lifelong project,” says Huggett-Henchie. “The earlier you start, the more time your money has to grow. Even if it’s tough now, commit to making saving for your retirement part of your monthly budget.”

Increase your contributions; even a little helps: The biggest reason people fall short at retirement is simple: they didn’t save enough during their working years. Review your budget line-by-line and see where you can trim back. Even a small increase in your monthly contributions today can add up to a significant boost in 20 years’ time.

Audit your expenses and cut the waste: Be honest about where your money goes. Many of us have subscriptions we never use or habits that quietly drain cash. By cancelling what you don’t need or swapping to cheaper options, you can redirect that money into your retirement fund. Your future self will thank you.

Take the driver’s seat in family finances: Far too often, women leave the bigger money decisions to their spouse or partner. Huggett-Henchie believes this is a mistake: “Know where the money comes from, where it’s going, and how much is being saved. Always know the current state of your financial affairs and review your insurance arrangements and retirement benefits at least annually. Financial awareness is power – and protection.”

Get expert advice: Putting money away is a great start, but a qualified financial adviser can help you make it work harder. They’ll assess your goals, suggest tax-smart strategies, and ensure your investments are right for your timeline and risk tolerance.

Maximise tax efficiency: The SA Revenue Service (SARS) gives you an annual gift of a tax deduction on your retirement funding contributions. Use it don’t lose it! For example, if you earn R270,000 per annum and you contribute 10% (R27,5000) to a retirement fund per annum, you could get back R7,150 (26%) when you submit your annual tax return the following year. Or if you do this via a payroll deduction, you get it back immediately. Therefore, for every R1,000 you contribute, it’s the same as SARS contributing R260 for you and you contributing only R740. But the full R1,000 plus investment growth is credited to your retirement fund for when you ultimately retire.

Adapt according to your life stage: We know that there is a time when we are all particularly financially stretched which is when we have kids to support. It’s OK to reduce (but not Stop!!) your contributions to a retirement fund during this time. However, when you are through the chaos, you have to “pay back the money” and really go all in with maximising your contributions in your last 15 years of working to make a difference.

The reality check

Many of us imagine retirement as a time to relax but, without enough savings, it can bring financial stress instead. “For women especially, retiring earlier than expected or without a plan can mean relying on relatives to make ends meet,” says Huggett-Henchie. “A well-structured retirement plan can reduce that risk and give you more independence in later life. Closing the gender gap in retirement savings isn’t just about numbers. It’s about giving yourself the freedom to live your later years on your own terms.”

The questions you need to ask before you retire

There’s a moment in every career when you should stop asking, “How much have I saved for my retirement?” and start asking, “What now?”.

Retirement isn’t the end of your financial journey; it’s the beginning of a new one. And, while most of us spend decades building up our retirement savings, far fewer take the time to understand how to turn our savings into a reliable income, navigate new tax realities, and properly plan our estate.

According to Siphamandla Buthelezi, Head of Platforms at advisory firm NMG Benefits, this is why people approaching retirement need to ask the right questions. “The ideal time to start putting everything in place is five years before you retire. This enables you to make informed decisions, iron out any admin issues, and understand the impact of your choices.”

Here are the most important questions you should ask your financial adviser:

What happens to my savings? Is it better to opt for a living annuity or a life annuity? Should you take a portion as a lump sum? Each comes with different income options, tax implications, and risks. If you choose a living annuity, you’ll need to decide on a realistic monthly drawdown rate and ensure your investments can keep up with inflation. A life annuity, on the other hand, offers guaranteed income for the rest of your life but comes at the cost of flexibility.

How will fees affect my income? Platform administration, investment management, and advice fees can significantly reduce your net income over time. Every rand spent on fees is a rand that doesn’t support your lifestyle, so you should understand what you’re paying – and whether it’s reasonable.

Are there tax implications? If you’re behind on your taxes, SARS will deduct the outstanding amount from your savings before you receive a cent. In addition, any lump sum you may take is taxed according to a sliding scale, although the first R550,000 is tax-free. Monthly drawdowns from living or life annuities are taxed just like any other income.

What about medical aid? Unless your employer offers post-retirement medical benefits, your membership ends when your job does. Even if you’re allowed to stay on your company’s scheme, the portion that your employer may have been paying will likely fall away, leaving you to foot the full premium just as your healthcare needs start to increase. Apart from the monthly premium, you also need to plan for gap cover and chronic condition benefits,.

Does my will reflect my wishes? You need to ensure your will is up to date and your beneficiary nominations align with your intentions. If you’re concerned about your future decision-making capacity, you should consider giving someone power of attorney, so they can make financial and healthcare decisions on your behalf. This shouldn’t be given lightly; you need to fully trust the person, and understand what you’re authorising.

Will my lifestyle be sustainable? A good rule of thumb is that your retirement income should equal 75% of your final salary, assuming that major expenses, like bond and car payments, have been settled. This is where a detailed financial and lifestyle audit comes in. You need to map out exactly what your income will be, what your expenses will look like, and whether there are any shortfalls.

Buthelezi notes that retirement isn’t just about stopping work. “It’s about stepping into a new chapter with the confidence that your financial foundation is solid. And this process doesn’t begin the day you stop working. It begins today – with asking the right questions.”

What happens to your retirement savings after retrenchment? Know your rights

Retrenchment is more than just losing your job. It can be a deeply destabilising experience that affects your income and savings for years to come. For many South Africans, the biggest question is: What happens to my pension fund if I’m retrenched? And just as important: What are my rights in the retrenchment process itself?

Natasha Huggett-Henchie, Consulting Actuary at financial advisory firm NMG Benefits says that all employees have rights and options when it comes to retirement savings after retrenchment – but the decisions you make can have far-reaching consequences. “The wrong move could mean working years longer to retire or retiring with far less than you’d planned.”

Huggett-Henchie breaks down how to protect your financial future in the event of a retrenchment:

Your pension savings

If you’ve been contributing to a retirement fund through your employer, that money remains yours. But whether you walk away with your full financial potential or take a long-term knock depends on what you choose to do next.

Under the two-pot retirement system, your savings are split into two components: a retirement pot (which you can only access when you retire), and a savings pot (which you can withdraw from once per tax year, even while employed). If you joined your fund before 31 August 2024, you will also have a vested pot. If you’re retrenched, you can access your savings pot and your vested pot. While it may be tempting to cash in, your withdrawal will be taxed. If you resign, the first R25,000 on your vested pot may be tax-free but after that, the more you take out, the higher the percentage of tax that will be levied. Your savings pot is fully taxed at marginal rates without any tax break, irrespective of whether you resign or are retrenched.

Fortunately, however, if you are retrenched you could qualify for your vested benefit to be taxed as a retirement, which is far more favourable than a withdrawal, with up to R550,000 tax free. The downside is that this is a “once in a lifetime” opportunity, so if you use up your “retirement tax allowance” if you are retrenched at age 40, it means you will have no tax-free benefit at age 65 should your eventually retire.

So, is it a good idea to withdraw, with or without using the beneficial tax? “Only if you urgently need the funds and have no other safety net. Ideally, you should preserve your pension savings by transferring them to another retirement savings vehicle, or to your new employer’s fund if you’re starting a new job.”

Your retrenchment benefit

If you belong to a group scheme through your employer, you may have a retrenchment benefit. This is usually a lump sum or short-term income that kicks in if you’re formally retrenched. You can also claim a retrenchment benefit through the Unemployment Insurance Fund (UIF). Your HR team, or a financial adviser, can give you more details.

Your life and disability cover

Another area people often overlook is the insurance cover they have through their group scheme. This may include things like life insurance, disability protection, or funeral cover. These benefits typically end when your employment ends but some insurers offer a conversion option that enables you to take over the policy in your personal capacity. But, the window to act is often just 30 days from date of exit. Even if this cover isn’t convertible, it’s worth speaking to a financial adviser to explore how to replace it privately, especially if you have financial dependants.

Your rights during retrenchment

Retrenchment is governed by the Labour Relations Act, which means you have the right to be consulted before any decision is made. It also requires employers to follow a fair process.

Your employer must give you formal notice of potential retrenchment and invite you (and your union or representative, if applicable) to consult on why retrenchments are happening, who’s being considered, and whether there are alternatives. You have the right to ask questions and explore alternatives.

If you’re retrenched, you’re legally entitled to:

One week’s severance pay for each year of service.
Compensation for unused leave days.
The notice period agreed to in your employment contract.

If your employer hasn’t followed the correct process, you have the right to refer the case to the CCMA.

The financial consequences of a retrenchment can last for decades, so it’s important to walk away with what’s yours. “The decisions you make about your pension savings and other benefits will shape your financial journey going forward. Get professional support from a qualified financial adviser, like those at NMG Benefits, and protect the future you’ve worked so hard to build,” says Huggett-Henchie.