A career change is a big deal at any stage or age. This can occur as a result of a decision made by you or someone else on your behalf. It was previously common for a person to work at the same company for decades or their entire working life. Frequent career change is the new normal of working. Financial security, however, does not change and remains a priority always.
RESIGNATION AND RE-EMPLOYMENT – TRANSITION – DESIRE FOR CAREER PROGRESSION, NEGATIVE WORK EXPERIENCES, BETTER WORKING CONDITIONS
- It can be nerve racking, exciting, and emotionally challenging at the same time. However, the change can also present an opportunity to gain new skills and experience, to advance one’s career and to earn a higher salary.
- Receiving a job offer is an opportunity to negotiate for a positive and pleasant work environment, a commensurate salary as well as other compensation such as flexi time, training, employee benefits, and working from home. Remember to evaluate the whole package and not merely the remuneration Consider medical aid, increased tax deductions, disability as well as group life cover, if any.
- Remember to protect yourself by doing a due diligence which will maximize your benefits.
- Career change is also time to reassess your retirement goals and identify any critical gaps. Your power lies in having knowledge about your individual financial situation
- Do not regard this as an opportunity to raid your retirement account as at present, some of it can be cashed out. Don’t give in to short term gratification in exchange for significant long term consequences. Consider the tax consequences as well. These are discussed below. Bear in mind that you will lose the value of compounding interest as well as the plausibility of building the capital up again.
- The hidden costs of changing jobs are that it can affect your career path and your professional development. You can also be perceived to be more concerned about salary and benefits than commitment to an organization. The timing of your resignation could result in the loss of an annual bonus.
- Evaluate the possible costs of the new career – moving expenses, travelling costs, new clothing required; increase or decrease in traffic if the hours are different as well as possible routes.
EXTERNAL FACTORS BEYOND OUR CONTROL – RETRENCHMENT/SHORTER HOURS
- This can be devastating as it affects your financial security and personal sense of worth. It can also have a severe negative impact on one’s psychological wellbeing. But bear in mind that the current trend post millennium is that people no longer remain in the same job for longer than five years and that the majority of people will have more than one career in their life time.
- As far as severance packages go it is important to understand the implications, especially as regards tax. Seek financial advice and plan the use of your severance package.
- You may lose your group cover benefits. Establish whether there is a continuation option that you can afford to continue with these benefits. This is usually only possible for up to 30 days after your contract has been terminated by the employer. Alternatively consider new risk cover.
- If you have an individual risk policy it might be necessary to inform your insurer about your career change, for example you were an accountant and have now qualified as a pilot. The risk will be assessed differently.
- One of the implications could be a possible income drop which will necessitate trimming of expenses and living on less, considering an extra job, part time work or freelancing. Cut back on unnecessary expenses. Budget carefully, buy in bulk, and freeze meals.
- Be honest about your retrenchment. Ensure that you understand why the retrenchments took place, assess whether the termination was legal and what obligations your former employer has.
- Do not panic.
- Start networking immediately. Update your CV. Make use of social media networks. Apply for work and potential opportunities by registering on job websites and make your CV active and searchable so that companies can find you. You now have time to take care of yourself and take care of outstanding paperwork.
- Obtain a quality reference from your retrenching employer which also describes the reasons for the retrenchment.
- Where relevant contact your creditors and arrange adjusted payments. Apply for UIF, and assess your medical aid plan.
- You should never raid your retirement account as it equates to short term strategy with long term implications. Penalties could be imposed by the product providers and withdrawal may have tax implications as set out below.
- Generally this is temporary situation – see what you can still pay for, such as insurance, and when you have a job again put away as much as you can to make up the shortfall.
- The use of an emergency fund will be appropriate as a method of managing expenses without piling on additional debt. It is good practice to live below your means and keep debt to a minimum, although not always possible.
- Get inspired and DIY.
- Further your skills by registering for a course or volunteer your services in an area where you might learn new skills.
The following is relative to 1.5, 1.9 and 1.17 and is therefore discussed separately and in relation to pre-retirement only:
When you resign or are retrenched you have the following options:
- To take 100% of your membership interest in cash.
- To transfer 100% to an approved preservation fund, a retirement annuity or the new employer’s fund.
- Combination of option 1 and 2 above.
Any cash withdrawal will attract tax according to the prescribed table. The first R25 000.00 of only the first withdrawal is taxed at a zero rate and the balance is taxed between 18% and 36%.Any cash withdrawal has a negative effect at retirement as this will impact the tax rate of a lump sum withdrawal at retirement.
The first R500 000.00 of only the initial severance benefit is taxed at a zero rate according to the prescribed table. Any amount over and above will be taxed between 18-36%. This does not apply to pro-rata bonuses, severance notice or leave. Severance benefits refer to any lump sum received due to the relinquishment, termination, loss or repudiation of employment.
It is advisable to preserve your pension benefits at resignation as this locks in your retirement savings and you pay no tax on this transfer.
Note as well that legislation will be implemented to promote the preservation of retirement benefits.