Thu Oct 27 12:52:50 SAST 2016

Old pension fund dodge won't work

By unknown | Sep 16, 2008 | COMMENTS [ 0 ]

Isaac Moledi

Isaac Moledi

If you or your employer plot a phoney retirement fund exit, be aware that you might land yourselves in trouble.

Liberty Corporate warns that plotting a phoney retirement fund exit might look like the way out of debt, but it could land employers and salary earners in even more trouble.

The company says as consumer distress mounts and over-committed breadwinners look for additional cash to pay off credit cards, housing loans and other debt, plotting a fund might be tempting.

David Price, Liberty Corporate executive, says: "There are two big issues at the moment - the debt trap facing individuals and the skills crisis facing their employers

"Bring the two together and you provide a new context for an old dodge - the fake resignation to create early access to a cash lump sum from the retirement fund," Price says.

He warns that those engaging in this sham risk jumping from the frying pan into the fire.

"Scrutiny of fund administration can be expected to be particularly intense at a time when the authorities are preparing to reform the pensions sector.

"They will come down hard on any ploy that perverts the core purpose of long-term, statutory saving," says Price, whose company administers more than 12 000 retirement schemes housing more than R40billion in statutory savings.

Liberty's pension fund specialists caution clients against this scam but admit that bosses can be under a lot of pressure to "go along".

Price explains: "Typically, a fund member approaches the employer or department head and says he is desperate for cash and needs his pension money.

"The fake exit seems to be the way to go as a skilled employee is "off the payroll" only to come straight back on again.

Price says the rationale is that "no one gets hurt and no one needs to be any the wiser", but this is not really true.

"An employer or departmental head might be desperate to retain skills and will try to be as accommodating as possible.

"But a ruse like this breaches the letter and spirit of the retirement fund rules and should not be contemplated," Price says.

He says employers are naive if they assume that keeping a formal letter of resignation on file will be sufficient to satisfy an inquiry.

"Seamless reinstatement from one month to the next exposes the sham," he says.

Claiming that the dodge was an act of kindness to help a desperate employee is no excuse.

Price says the long-term repercussions can be severe as early access to pension money puts a dent in potential investment build-up.

The eventual consequence could be retirement in poverty, leaving the individual dependent on social grants - the exact scenario proper pension provision is meant to avoid.


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