A Fin24 reader whose salary has been cut by more than 50% is struggling to make ends meet. He considers withdrawing a portion of his pension fund to pay off his debt.
I want to enquire if I can withdraw part of my provident fund to pay off my debt, which is close to R200 000.
When I paid off my house, I lost my mom and had problems with SARS. My car broke down, so I had no choice but to enter into debt by taking out loans.
My financial problems started in May 2020 when the company I work for cut my salary. I could not fulfil the debt obligations, which resulted in me reducing my insurance and closing some of my investments to help me pay for my kids' university fees.
Debt consolidation will not help since I'm still earning less than 50% of my salary.
Jaco Prinsloo CFP, Financial Planner at Alexander Forbes responds:
Under the current legislation up, you can not withdraw a part of your provident fund to pay off debt. The only circumstances that will allow you to access up our provident fund savings are if you pass away, resign or retire from your employer or if your fund allows a loan against the capital for housing purposes. With your current financial problems, resigning or retiring (if you are over to the age of 55) to access your provident fund savings should not be considered.
With the limited information available to me, my best advice for the reader is to aim to keep your monthly expenses as low as possible, set up a debt repayment plan, and look for ways to increase your income. Speak to the companies you owe money to and see if you can work out alternative payment plans to improve your cash flow. You should also consider alternatives for your children’s tertiary education if you can’t afford it.
If you accessed your provident fund now you would also reduce your own long term retirement savings which would be very difficult to make back by retirement, creating other problems in the future.
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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