Connect with us

Wealth Management

WHY YOU SHOULD NOT CASH IN YOUR RETIREMENT FUND MONEY

By Gary Fisher, Head: Member Education Services at Alexander Forbes

 

We live in uncertain times, and with people struggling to make ends and the rising cost of living, many South Africans are seeking additional ways of injecting income into their monthly cash flow. However, changing jobs or being retrenched should never be viewed as an opportunity to access extra money in the form of your retirement savings.

 

According to the Alexander Forbes Member Watch Survey 2018, the average retirement fund member would only get R2 880 as a pension for every R10 000 they were earning before retirement – mainly because they withdraw their retirement fund savings instead of preserving them when they change jobs. Our research shows that key reasons why members don’t preserve their retirement fund savings when they change jobs are over-indebtedness created by a lack of savings; unforeseen emergencies, or for goals and plans (like holiday expenses or education costs). Debt is the enemy of savings.

 

Gary Fisher

With this in mind let’s look at some of the reasons why you should not cash in your retirement fund money:

 

  1. Losing out on the power of compound interest

Your retirement fund is deemed to be a long-term investment and money invested in your company pension or provident fund needs time to grow into a sizeable lump sum. Put simply, compound interest or compounding happens when you earn a return on your investment, and the return you received starts to generate its own return. Over time this growth happens exponentially which ultimately translates into wealth. One of the world’s foremost investors, Warren Buffett, ascribes most of his success to the power of compound interest.

 

  1. Incurring an unnecessary tax liability

Preserving or ensuring that your retirement benefit continues to grow when you withdraw from your employer’s retirement fund is an important principle to follow in that you will not pay any tax over to the South African Revenue Service when exercising this option. However, should you decide to withdraw your benefit in cash you will need to pay tax.

 

During your lifetime you can take a total of R500 000 from your combined retirement savings tax-free on retirement. However, all amounts you withdraw in cash (exceeding R25 000) before retirement will reduce this amount. So, effectively by taking cash each time you change jobs, you end up paying more tax and reducing your tax-free amount available to you at retirement when you need it most.

 

  1. Shortfalls in retirement

Many South Africans only start paying attention to their retirement savings later in life and unfortunately to their dismay they discover their projected earnings that they will receive in retirement are usually very low when measured against their current earnings projected forward, as well as their personal expectations of what they think that they should be earning once they retire. This is all the more reason not to cash in one’s retirement fund money, particularly in the earlier years of employment as it disqualifies you from harnessing the power of compound interest and results in shortfalls at retirement which become difficult to make up as our expenses increase in line with our lifestyles and medical bills later in life.

 

  1. Starting all over again

Each time we cash in retirement benefits, we effectively re-set our retirement compounding clock to zero and we start again from the very beginning. In the process, we rob ourselves of the one ingredient that could make the difference between a comfortable retirement and one that is fraught with financial uncertainty – time.

 

Give your retirement savings the gift of time so that they can harness the power of compounding which will translate into a more comfortable retirement.

 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Wealth Management

HOW RESILIENT IS YOUR ORGANISATION’S SECURITY?

Kimon Nicolaides, Digital Services Group Head at MASS

 

Organisational security can be thought of like peeling the layers of an onion – with critical assets sitting in the middle protected by multiple layers, and if one layer is removed or breached, there’s another one underneath. At least that’s the way it should be – too often, however, we see a siloed approach to the different areas of security. In practice, physical, cyber and personnel security can be much more inter-related than many imagine.

The finance sector is arguably one of the more mature in terms of established security measures. However, it’s also vastly diverse, targeted by some of the most advanced threat actors, and one where even the smallest breach has the potential for significant impact, monetarily, or on market reputation, perception or confidence. Security measures should therefore be viewed holistically, led and understood by senior management, otherwise gaps for exploitation will be found by intelligent and experienced people, supported by an ever-growing arsenal of exploitation technology.

Here, we take a closer look at some of the things that comprise a holistic view of security – based on the approach we take with public sector and defence organisations.

 

Physical security

It may seem obvious, but the first layer to assess should be the physical access to your business. For all organisations, this step remains as true today as it ever has been – even for the finance industry where physical security principles have been established over many years.

This stage should go back to the basics of how an intruder could gain access, starting by reviewing the ‘perimeter’ controls. In fact, the first question is, ‘what is the perimeter?’. With the potential for distributed site facilities, linked remote assets, and supply chain dependencies, this simple question needs careful consideration.

Scenario-based analysis, using threat actor personas, motivations and objectives can really help by defining a where a ‘perimeter’ really lies. It’s also an invaluable methodology for exposing how an organisation could be exploited.

This stage should involve a review of physical controls such as fencing, access technology, CCTV coverage etc., including, their role in deterrence and detection of hostile reconnaissance activities.  Disrupting the planning cycle of attacks is often overlooked relative to direct prevention of unauthorised access.

Ultimately, security measures are only as effective as the people that apply them, so an understanding of human behaviours is essential. It’s important to consider how people’s actions affect overall site security and, why these actions occur.

Issues can range from the wearing of security badges in the street through to poor motivation and effectiveness of roving security staff or those monitoring CCTV. Simple and innocent human mistakes could form the seed of future security breaches.

 

Cyber security

The finance sector has progressed its cyber resilience considerably as it’s been dealing with threats for many years. But business sizes now range from the very large to the small and, as new forms of financial transactions evolve, protection becomes more challenging. There is an increased availability of cyber exploitation toolsets and associated managed services and coupled with a reduction in their cost – lowering the financial and technical barriers to advanced cyber-attacks.

This means that cyber security, even for the finance sector, needs to be taken to a new level and existing assumptions continuously challenged.

For example, while penetration testing regimes remain a vital tool in mitigating network cyber risk (including ‘CBEST’ which has been widely rolled out across the finance sector), these still remain a snapshot in time. While they deliver valuable depth of analysis within a network, they are often constrained in breadth of scope and can potentially leave vulnerability blind spots. Very frequent, lighter-touch cyber assessments can fill this gap as they offer a more dynamic view of ongoing vulnerabilities over a wider proportion of the estate, which could represent ‘low hanging fruit’ for the cyber actor. Assessments can be enhanced by applying modern threat intelligence techniques to rapidly identify existing compromises and potential weaknesses (including personnel and corporate digital footprint). This establishes a picture of cyber posture and vulnerabilities before any testing taking place.

Similarly, end-user device security is often viewed in terms of the encryption strength, keys etc.  However, modern methods of fault injection attack (a device’s response to artificially applied ‘fault conditions’ used to derive security credentials), can effectively sidestep assumed security measures, which would normally take decades to ‘crack’ using computer power. So, it makes sense to test a device’s vulnerability to fault injection, rather than assuming encryption alone will protect it.

For this reason, it’s crucial to examine the wider supply chain. In the finance sector, there is high dependence on suppliers of digital telecommunications and energy services, and when different systems are interconnected its challenging to pinpoint cyber resilience risks. Despite this, it’s possible to map complex information to establish risk, by identifying ‘hot-spot’ concentrations of dependencies that represent single-point failures within the complexity of the overall business operation.

 

The insider threat

The potential threat from insiders – those who might misuse their legitimate access to an organisation’s assets for unauthorised purposes – is often overlooked.

This is particularly true for financial businesses, where personal financial gain could be an incentive, or where security controls are so effective that hostile actors must exploit those with legitimate access to circumvent them. You can think of insider threat as the ‘grand master skeleton key’ of security, as there are few security measures that cannot be overcome by the right insider, or team of insiders.  Security compromises involving insiders can also have a disproportionately high business impact.

Yet many organisations consider insider risk to be mitigated simply by pre-employment screening and fail to recognise the spectrum of risks ranging from genuine human error, through to orchestrated insider activity by paid professionals. Insider cases frequently involve individuals who have been with an organisation for some years and have had some personal vulnerability exploited or exposed, or simply become disgruntled.

It’s a broad area to address. Internal governance, security culture, employee wellbeing, employment measures, corporate digital footprint, and perceived employee sentiment are some of the aspects that should be considered. When you have understood this for your own organisation, you should make the same assessment of your supply chain.

If the business is committed, it’s possible to use structured analytical methods to quantify your organisation’s maturity and assess where the key vulnerabilities and risks could lie. This understanding paves the way for improvement, and even small changes can make a big difference.

 

The hidden layers

Like an onion, there are hidden layers to security that may be overlooked so it’s important to consider physical, cyber and personnel security collectively, and to understand the dependencies you have as a business.

For example, your own environment may be protected, but if data is shared with your suppliers or partners, is it still secure? Similarly, if a supplier or partner has a security breach, what does it mean for your operation, your business continuity and your customers?

When assessing security measures, it’s essential to go an extra layer deeper and consider how a range of factors could impact your organisation and its readiness to respond to an incident.

At MASS, our security experts consist of professionals with extensive experience in preventing security breaches and performing assessments in accordance with Ministry of Defence processes, so that we can ensure our security analysis meets and exceeds industry best practice.

For more information, please visit: https://www.mass.co.uk/what-we-do/cyber-security/cyber-security-training/

 

Continue Reading

Wealth Management

HOW TO CATCH UP ON YOUR RETIREMENT SAVINGS

By Gerard Visser, Certified Financial Planner at Alexander Forbes

For many South Africans who were already finding it difficult to save for retirement, Covid-19 has created additional financial pressures which may take years to overcome.

If you stopped contributions to your retirement annuity, or took a payment holiday on your pension or provident fund, you might be worried about the shortfall created, and how you’re going to catch up.

Stop worrying and take action to avoid retiring with insufficient funds. There are many ways to contribute to your retirement, from employer and employee contributions to pension or provident fund, monthly contributions to a Retirement Annuity or a tax free savings account.

With many people having a reduced income due to the economic ramifications of Covid-19, it might be impossible to contribute a large monthly amount to catch up while having concerns such as debt to pay, but I recommend starting with your budget. This will aid you not only by freeing up extra funds to catch up your retirement contributions with, but could also create some peace of mind with an opportunity to pay debts off faster or save some discretionary money.

Gerard Visser

There are many reasons why it is important to follow a monthly budget. Besides reducing stress levels by keeping an eye on your spending habits, it also allows you to track your debts, finding opportunities to top up emergency funds or save extra towards your retirement. A budget goes hand-in-hand with setting and achieving financial goals.

A budget does create an additional administrative burden and requires time to update. I have my budget on an Excel spreadsheet and update it monthly when making EFT payments.

Costs for entertainment, groceries and petrol are variable in nature and change each month. You might end up not using all the funds set aside for these variable costs. Adding these leftover funds at the end of the month to your savings is a good habit to inculcate. The immediate impact might seem small but over time will make a positive outcome to both your retirement and the development of a savings mind-set.

When you are able to free up some money each month, start automating your savings. Instead of having a variable amount go towards savings, set up an automatic contribution, where you “pay yourself first”. Set up an automatic debit for your retirement savings and you’ll grow these funds without having to think about it.

One of the most important decisions you can take to help make your retirement comfortable is preserving your retirement funds when changing employer.

When starting new employment or if you are coming out of a payment holiday, try matching your employer’s monthly contribution toward your pension or provident fund, or if on a total cost to company structure, start on the maximum employee contribution percentage. By doing this as well as automating your savings, you get use to contributing those amounts and could potentially have a larger nest egg at retirement.

Remember that life happens, and your budget might come under strain – many of us have experienced this during the pandemic. If you have been going through a difficult financial time, it is time to reassess and ask yourself, what in your budget is necessary and what is actually a luxury?

It is never too late to start sorting out your finances, but the earlier you start, the better, and more achievable, the outcome will be.

 

Continue Reading

Magazine

Partner Events

Trending

Top 108 hours ago

WHY INDONESIA IS THE WORLD’S NEXT DIGITAL PAYMENTS BATTLEGROUND

Kelvin Phua, Global Head of Payment Networks at PPRO   The COVID-19 outbreak has seen the e-commerce sector surge. Despite...

Business8 hours ago

HELPING SMES ACCESS FINANCE IN EXTRAORDINARY TIMES

Tim Vine, Head of Credit Intelligence at Dun & Bradstreet   The closed doors of businesses have become a sadly...

Business8 hours ago

DO MESSAGING APPS PUT THE FINANCIAL SERVICES INDUSTRY AT RISK?

Ashley Friedlein, founder and CEO, Guild   Accelerated by the coronavirus pandemic, the use of messaging apps for professional communications...

Business22 hours ago

HOW PREVENTING AND MITIGATING FRAUD CAN IMPACT YOUR CUSTOMER RELATIONS

Matt Mascherin, Solutions Engineer, Enterprise Sales Americas   Texting has become a staple of modern life and is so pervasive...

Finance1 day ago

2020: THE YEAR OPERATIONAL RESILIENCE AND CYBER-RISK TAKE CENTRE STAGE IN FINANCIAL SERVICES

Miles Tappin, VP of EMEA for ThreatConnect, explores how financial providers can build a cyber security strategy that enables operational...

Wealth Management1 day ago

HOW RESILIENT IS YOUR ORGANISATION’S SECURITY?

Kimon Nicolaides, Digital Services Group Head at MASS   Organisational security can be thought of like peeling the layers of...

News2 days ago

INTERNATIONAL BANKING NETWORK EXPANDS AS IT WELCOMES STANDARD CHARTERED BANK

IBOS Association (IBOS), an international banking network, is delighted to announce its newest member to the group, Standard Chartered Bank....

Wealth Management2 days ago

HOW TO CATCH UP ON YOUR RETIREMENT SAVINGS

By Gerard Visser, Certified Financial Planner at Alexander Forbes For many South Africans who were already finding it difficult to save...

Technology2 days ago

ARTIFICIAL INTELLIGENCE AND FUTURE OF TECHNOLOGY

Ashish Jain, CEO, Future FX   Artificial Intelligence refers to machine intelligence that is programmed to think like humans and...

Finance2 days ago

GROWTH OF FINANCIAL MARKETS AND TECHNOLOGY

Ashish Jain,CEO, Future FX   The economic development of any nation completely depends on its financial structure both in long...

Banking4 days ago

NO SAFE HARBOUR FOR DIGITAL BANKING

by Konstantin Bodragin, Business Analyst and Digital Marketing Officer at Bruc Bond   At the beginning of 2020, the future...

Business4 days ago

CAN TECHNICAL INNOVATION HELP FINANCIAL SERVICES FIGHT BACK AGAINST FINANCIAL CRIME?

By Charlie Roberts, Head of Business Development, UK, Ireland & EU at IDnow   It’s no secret that the financial...

News4 days ago

ARE MIDDLE EAST ENTERPRISES PREPARED FOR THE FUTURE?

Deloitte releases 2020 tech trends report   Deloitte’s 11th annual report on technology trends captures the intersection of digital technologies, human...

Wealth Management4 days ago

ONLINE STOCK BROKERS ARE BENEFITING IN 2020

2020 has changed our lives in dramatic ways. Thanks to COVID-19, many of us now work from home. Rather than...

AI AI
Finance6 days ago

COULD COVID-19 BE THE CATALYST FOR DIGITAL TRANSFORMATION IN FINANCE?

By Simon Bull, Sales Operations & Business Development Manager at Aqilla   We are all now living in a new...

Banking6 days ago

WHY OPEN BANKING SHOULD BE EVERY MARKETER’S BEST FRIEND

By Kathryn Wright, CSO, Upside   To date, Open Banking has been mainly utilised to help consumers with account switching...

Finance6 days ago

TOP TECHNOLOGY TRENDS FINANCIAL INSTITUTIONS SHOULD INVEST IN TO BRIDGE THE GAP IN REMOTE WORK

Chirag Shah, Senior Vice President, Fintech & Innovation Lead, Publicis Sapient   More than ever before, technology is critical to...

Business1 week ago

TOP 5 LINKEDIN PROFILE OPTIMIZATION HACKS FOR ASPIRING BANKERS

According to Firmex, finance professionals cannot afford to be not on LinkedIn. A significant number of organizations acquire talent in...

Wealth Management1 week ago

TAPPING INTO THE DATA GOLDMINE: THE FUTURE OF DATA-DRIVEN CREDIT MANAGEMENT

Willand Brienen, product owner at Onguard   Data, and the insights it reveals, can offer organisations a vast number of...

Finance1 week ago

ENLISTING TECHNOLOGY TO HELP FIGHT FINANCIAL CRIME

By Rachel Woolley, Director of Financial Crime Fenergo   Million-dollar properties, private jets and parties on luxury yachts with celebrity...

Trending