Employees who leave a job for “more money” often find that the monetary value of their new package was actually not worth the move, says Lesego Mpete, an employee benefits corporate consultant at accounting firm BDO South Africa. Such is the cost of financial illiteracy.
Employee benefits, such as group life cover, dread disease cover and your employer’s contributions to a pension or provident fund, have become increasingly important, Mpete says. And if a prospective employer doesn’t offer these benefits, you need to negotiate a package that will compensate you for the loss of such benefits.
“Leaving a company that has employee benefits for one that doesn’t, but pays more, is a massive risk,” she says. This is because you will have to fund these benefits yourself, which is likely to cost an individual more.
“Obtaining life cover, income protection insurance, or even a funeral cover, on your own is likely to be more expensive when compared with getting it as a group employee,” Mpete says. With group cover, there is no underwriting of individuals: the risk is spread across the group. This makes group cover relatively cheap and a very attractive employee benefit. If you are a high-risk client owing to a health issue, life cover would cost more if you were to obtain it as an individual than if it was part of your group cover.
“Your salary is your biggest asset, and if you’re working for a company that doesn’t offer income protection [disability cover], dread disease cover, or life cover, think of what could happen to you or your family should you find yourself in a position where your income is compromised. This means that [unless you have taken out credit life cover] if you have a mortgage bond or a car loan, the bank might be knocking at your door to repossess both your house and your car [if you can’t cover these expenses due to becoming disabled].”
Meeting your family’s basic needs may also become a challenge, Mpete says.
Before you accept a remuneration package without life cover, determine the value of your current group cover and then obtain a quote for what it will cost you, as an individual, to replace that cover.
For example, if you have cover of twice an annual salary of R250 000 a year as a lump sum on either death or disability, find out what it will cost you to buy R500 000 of cover for either death or disability and make sure that the terms of the cover are the same.
Individual policies can appear cheaper if the disability cover, for example, is an accelerated benefit of the life cover. This means that if you are disabled, you will be paid the benefit. However, if you die a year later, your dependants will not receive a life assurance benefit, because you received it when you became disabled.
“I cannot stress enough the importance of speaking to a financial planner before changing jobs,” Mpete says.
Sue Torr, the managing director of Crue Invest, agrees. There are many issues to consider, she says, including moving tax brackets, earning commissions/bonuses and changing medical schemes.
“With dramatic increases to medical scheme premiums looming, any company subsidy with respect to a medical scheme is an enormous benefit,” she says.
It is also worthwhile talking to a financial adviser before you leave a job so that he or she can point out to you the risks of spending your accumulated retirement savings instead of reinvesting them in a preservation fund, Torr says.
“A major benefit of working for a company that has a compulsory retirement fund in place is that it forces you to save for retirement. If you move to a company that doesn’t have formal retirement funding benefits, you need to be disciplined enough to invest in your own capacity, not only the contribution you are currently making as an employee, but also any contribution your employer makes on your behalf.
“There are lots of transfer, preservation and continuation options, and underwriting implications when moving employers, and these all need to be addressed in a financial plan,” Torr says.
Christine Masinga, the managing executive of human resources at MMI, says that, to seal the deal with the right people, employers need to offer candidates a personalised, value-adding benefits package.