Even if your retirement seems some time away, you can greatly benefit your financial security in retirement by knowing whether to retire or to resign from your Government Employees’ Pension Fund. The decision is dependent on your individual needs and circumstances.

Retire or resign

By retiring from the GEPF, you receive a guaranteed income, through the GEPF. Resigning from the GEPF enables you to manage your own post-retirement capital and income.

One consideration is period of service at time of career retirement:

• Fewer than 10 years - receive a once-off lump sum (gratuity)
• More than 10 years – benefits consist in two parts:
  • a once-off lump sum (gratuity), and
  • a monthly pension

This article focuses on members with more than 10 years of service.

Considerations when choosing to retire or resign:

• Do you have a spouse? If so, do they have retirement funds or other sources of income?
• When you die, do you want to transfer the available funds from your retirement to your beneficiaries as a legacy?
• Do you have any other sources of income at retirement?
• Do you have any chronic illnesses?
• Do you prefer controlling your capital and income, or rather having a guaranteed income option with no control?

Although a retiring member is guaranteed to receive a pension until death, this may not be the best option depending on their circumstances.

Here are two scenarios to illustrate the different outcomes:

1. Tim, a widower and government-employee of 31 years; he owns properties providing him with a monthly rental income, and his other investments also provide him with income – these are potential legacies for his children. He wants his grandchildren to inherit from his retirement benefits.

Tim may either:

• retire within the GEPF where he will be entitled to take the gratuity lump sum and monthly pension which pays until his death; or

• resign from the GEPF before the retirement date. On resignation, he can transfer the funds to an approved retirement fund. Thereafter, he can retire from the retirement fund, transfer the funds to a Living Annuity and nominate  beneficiaries. With this option, the medical aid subsidy from his employer ceases.

Tim might choose to resign, so as to leave a legacy of his retirement benefits to his grandchildren.

2. Busisiwe, who is diabetic, retires from the GEPF in a year, after 15 years’ service. Her retired husband receives an income from his Living Annuity. They have no dependants.

Busisiwe has the same options as Tim, but may opt to retire within the GEPF, to give her a lump sum gratuity portion and a guaranteed income until death. Since she is diabetic, retiring within the GEPF is favourable as her employer pays a portion of her monthly medical aid membership for the rest of her life, provided she has been a main member of her recognised medical aid scheme for the last 12 months without a break before retirement. If she dies within five years of her retirement, her dependants receive a calculated lump sum amount and her spouse receives a monthly pension (50% or 75% of what she was receiving) until he dies. If she dies five or more years after retirement, her spouse receives 50% or 75% of the pension she was receiving, depending on which percentage option she selected at retirement.

There is no superior choice: the decision depends on your financial objectives and circumstances.

Sources: FundNews_First_Edition_2017.pdf (gepf.co.za) Government Employees Pension Fund Member Guide.
 

This article was originally published in the Proficio, NFB's bimonthly financial update, edition June / July 2021. Download the complete NFB Proficio newsletter here