A Fin24 reader wanted to retire at 65, but his company informed him that he opted for early retirement at 62. He is seeking advice.
I need your advice concerning my provident fund. I have worked for the same company for 19 years. I was medically boarded in 2004 and my provident fund was deducted on my disability fund. According to company policy and my contract of employment, normal retirement can be taken at 62 years of age, which, in my case, was on 14 October, 2019. However, my intention was to only go on normal retirement when I reached 65 years of age.
The company has since informed me that I had opted to take "early retirement", which isn't what I wanted to do at all. I was paid R600 000 after 19 years' service.
Belinda Sullivan, head of corporate consulting strategy at Alexander Forbes responds:
The assumption here is that you were in receipt of a monthly disability income benefit due to your disability. The monthly contribution to your provident fund was then deducted from your disability benefit and paid over to the fund. The disability benefit is payable in terms of a policy of insurance which would also set out the age at which your benefit will stop - even if your contract of employment sets out a different normal retirement age.
So if the benefit stops at age 62, you would not be receiving a monthly income from which your provident fund contributions could be deducted and paid to the fund. Your continued eligibility to be a member of the fund will be set out in the rules of the fund and may change if you are no longer receiving the disability income benefit.
As a member of a provident fund, the money in the fund builds up like a savings account, what you put into the fund is what you can expect to get out plus (or minus) the accumulated investment return over the years. This means that the longer that you remain a member of the fund, the more time you have to add money to your pot of savings.
There is no specific penalty in the rules of a provident fund to limit your benefit on early retirement; however, you do lose the opportunity to contribute towards your savings for an extra three years.
It is important to understand what the contract says about the date that your disability benefit will stop.
*Disclaimer: This response does not constitute financial advice. It is recommended that you to meet with a financial advisor who can assist you to understand your benefits and options to make the best decisions based on your personal circumstances.
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