With the new pension regulations, portability of pensions (that is, taking your benefits when you leave a job) will be almost impossible. Instead, locking-in of pensions will be the norm. This means that once you leave a job, your accrued pension will be transferred to your new place of employ. Some persons have expressed misgivings about this but Mr. Aldridge explains why it might be better to leave your pension where it is rather than taking the 'windfall.'PEOPLE FEEL that they can do better with the money than
letting it stay in the fund.
There are cases, for example, where persons feel that it is best to take the money and buy a taxi and generate some income off that or they might say. Better for me to put on a room on my house and rent it out.'
NOT WORKING OUT
I have never done any analysis of it but what it seems to me, on the surface, is that most of the time it does not work out. Because the taxi business is extremely competitive and even if you put a room on your house, remember there is no guarantee that you will earn a return that is higher than what you could earn in the financial market if the money was put towards a formal investment plan.
Let's use, as an example, $500,000. You are leaving the job. You are given the option of leaving the money in the fund or taking the money. You decide that you are going to take the money and build a room on your house to rent it out. For that to work -- for you to earn 10 per cent per annum on that money -- you have to be able to rent the room for $50,000. How likely is that to happen? Not very likely.
However, the investment now, on Treasury Bills is [roughly] 13 per cent.
People have to think very carefully before they make these decisions. Usually the money is squandered. It doesn't always happen but usually that is the case. My advice is to leave the pension money where it is:
pension is for pension.
