Flexibility vs costs

Fazal asks: I have been outsourced to another company and need some help regarding my provident fund. I have almost 30 years of service. My issue is whether I should move to the new company’s provident fund or invest in a preservation Fund.
My fund is approximately R950 000.

Maya replies: There are two considerations here—cost and flexibility.

As you are moving to a large company it would be far more cost-effective for you to transfer to the company provident fund than to start a preservation fund.

The company would pay for most of the fund costs and generally the fees are much lower than for individual investments. You would also avoid paying any upfront costs.

The benefit, however, of a preservation fund is that you are allowed a one-off withdrawal before retirement so you have more flexibility. Ideally you do not want to tap into this money before you retire but for some people accessibility makes them feel more secure.

If you have other savings that you could use for emergencies then the company provident fund would probably be the best route.

You should also use this opportunity to sit down with a financial adviser or with a consultant from the new company to calculate your retirement needs. If there is a shortfall you could opt to increase your contribution to the provident fund or increase your other savings.

Use this opportunity to give your finances a really good health check.

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