Government's early retirement plan a golden opportunity, but tread carefully
Would-be retirees in the public service have a golden opportunity in the National Treasury's offer of early retirement without penalties.
It could, however, take some time for this offer, introduced under a new section in the Public Service Act, to be implemented. This gives you, a potential beneficiary of the scheme, plenty of time to plan.
It's better to get the right advice ahead of time in order to make informed investment decisions.
Failing to plan could mean missing an opportunity to make your money work for you.
The opportunity, in our view, serves two major purposes. The first one is the creation of a one-off early exit for current employees wishing to retire from government work if they are between 55 and 60 years old.
The best part is that a qualifying participant will be able to retire free of penalties as if they were already 60, the upper end of the age range, where most members are automatically retired with full benefits, unless other arrangements are negotiated internally at departmental level.
The second opportunity is for the government to reduce its massive wage bill, still almost a third of our total annual budget.
Through this plan, the National Treasury will assist with the provision of funds to help members who take the option to depart with their full benefits.
Should there be a shortfall of retirement funding due to you opting to take the early retirement option, the Treasury will cover that shortfall.
However, it must be noted that certain exclusions and challenges exist.
Here are answers to some questions about the process.
Is my application for early departure automatically approved?
No, an executive authority in each relevant department is responsible for approving your application.
Does everyone older than 55 qualify?
No, not everyone qualifies to take advantage of this "golden handshake".
To avoid a mass exodus, the government strategically determined three groups of employees who could benefit from the opportunity.
If you work for the following service departments, you automatically qualify for consideration:
• South African National Defence Force;
• South African Police Service;
• Department of correctional services;
• Department of education - employed as an educator; and
• Members of the State Security Agency, as per the Intelligence Services Act.
All other departments are excluded from this process.
Are there other departmental issues that could affect my application?
It is important to note that the Treasury has, correctly, insisted that departments create appropriate strategic, human resources (HR) and broader budget plans that will help ensure continuity of work in the departments after the expected exits.
It will help estimate how much is needed to cover the shortfalls, and what future budget implications will arise from this process.
Two separate centres of responsibility have been created over and above the responsible authority.
The first one is the early assessment retirement committee, which must assess collective regional applications and their impact on the region and departmental budgets.
This cluster comprises HR and finance departments, and broadly aims to ensure that uniform assessment measures and cost calculations are applied across the relevant departments.
The other cluster is the departmental early retirement moderating committee.
This is the last team to recommend a "stay" or "go" decision, after assessing the work of the early assessment retirement committee.
Will my process be addressed timeously?
We are concerned that too many tiers of responsibility have been created and this could cause the process to take longer than the government expects. We suggest you exercise patience.
Key timelines include:
• April 1 2019 - the official start of the process; and
• September 30 2019 - the expected end of the process. Any extensions will have to be publicly communicated.
Once approved, your application will be valid for only 30 days, during which you will have to accept or decline the package offered to you.
How is my benefit calculated normally?
The value of your benefits is based on:
• Your length of pensionable service;
• Your final salary; and
• Your exit age. (Normally your age would reduce your benefit if you retire early, but not in terms of this early retirement offer.)
Under the new offer, what has changed?
Previously, when you retired before the normal retirement age of 60, and you had more than 10 years of service, you received a gratuity (cash lump sum) and a monthly annuity for life; this will also apply to the new offer. The gratuity and monthly annuity would normally be reduced by a third of one percent (0.33%) if you retire early, but this reduction will not apply under the proposed offer. It means the offer is essentially the same as retiring at 60.
What considerations should I note?
Your benefit is a function of service years and final salary. You should realise that you will possibly forgo a higher retirement benefit by not working until the age of 60 as you could have received an annual increase to your salary and the additional years worked would have increased your benefit. At retirement, government employees face the choice of resigning and taking a pension with another provider or retiring and receiving a pension from the Government Employees Pension Fund. When you start considering retirement or resignation, you should consult a suitably qualified financial adviser in order to make an informed decision.
• Nkomo is a director at Inkunzi Wealth Group.