What should I consider when changing jobs?

A new job brings new energy, new opportunities, and in many cases, more money. However, the financial impacts can extend far beyond your salary, particularly if you are losing or gaining some company benefits. Set some time aside to consider all the financial aspects to avoid mistakes that could be costly in the long term.

Understand what you are gaining and losing

Your financial planning may be affected by your career move, so start by gathering important information around non-salary benefits:

Does your new employer offer retirement benefits, risk benefits, and medical scheme subsidy and how do these benefits differ from your current benefits?

If there are differences, how does this affect your monthly budget?

What cover is provided, and how does this impact on your existing cover and financial planning?

Once you have this information, you will be able to compare it to what you have and if the cover is different or insufficient, work out, or use a financial adviser to help you make sure you have the right cover and are saving enough for retirement. 

Tally up extra costs or deductions

Being offered a higher salary does not guarantee that you will have more money in your bank account at the end of the month.

You could start earning enough to pay tax for the first time or your tax rate could increase on a higher salary – although you should always come out better off on a higher income, even if your marginal tax rate increases.

You may have other deductions apart from the usual unemployment insurance fund (UIF), such as deductions for employer-provided benefits. You may also spend more money on things such as:

• Travel costs if your new employer is located further away from your home
  
  
• Parking costs
  
  
• Childcare costs if you are located further away from your children’s school or daycare
  
  
• Higher vehicle maintenance if you’re travelling longer distances
  
  
• Clothing if you need to see clients or travel or do presentations.

Consider these costs when determining how much money you will have after deductions and other expenses. Then adjust your budget to ensure that everything balances.

Retirement fund decisions on leaving your job

If you contributed to your employer’s pension or provident fund, you must decide what to do with your retirement savings.  You have three options:

• Leave your retirement savings in your old employer’s fund. You will be regarded as a paid-up member and cannot make any new contributions. You need to keep your details with the fund up to date so that you can be informed of any changes to how your money is invested and the fees you pay. You can transfer from this fund into a new fund at any time.
  
  
• Transfer your retirement savings into your new employer’s fund and continue to contribute through your new employer.
  
  
• Transfer your money to a preservation fund or retirement annuity. Read more: What are my retirement pot choices when I leave my job and my fund?

If you have money in a vested pot in your retirement fund, this is subject to the fund rules that applied before the two-pot retirement system was introduced, so you may be able to access this money when you resign. This can have a significant impact on your retirement planning as you will lose out on years of compound growth and there are tax implications.

You can also access what is in your savings pot when you change jobs and this may also have retirement planning and tax implications.

Seek professional financial advice before making decisions around your retirement funds.

If you are moving to a new job or contract employment with no benefits, be sure to provide for your own retirement contributions as well as any your current employer made on your behalf by contributing to a retirement annuity fund. This will help ensure you remain on track for a comfortable retirement. Read more: How do retirement annuities allow me to create my own retirement savings?

Comparing healthcare cover between jobs

If you currently do not have medical scheme cover or your employer subsidises your membership of one of the primary healthcare plans, find out if you will enjoy similar or better benefits.

If you belong to your employer’s restricted medical scheme, your membership of that scheme will cease when you leave your employer, unless you stay on as a continuation member in the case of retrenchment, disability or retirement.

Find out if your new employer requires you to belong to a scheme – either a restricted medical scheme or an open medical scheme or a choice of open ones, and whether it will subsidise any of your medical scheme contributions.

Depending on what scheme you currently belong to or what your new employer requires or offers, you may need to switch schemes or change the way in which your medical scheme contributions are paid.

If your new employer does not require you to belong to a medical scheme, you will need to make your own arrangements for medical cover. Do this timeously if your medical scheme membership ceases the day you leave your current employer.

If you belong to an open medical scheme, you can remain a member of that scheme but you will need to make arrangements with the scheme to pay the contributions yourself from your bank account or for your new employer to pay the contributions from your salary.

Be sure you do not have a gap in your membership when you are not covered if you take time off between jobs.

If you change schemes or scheme options, be sure to check for changes in benefits and what this will mean for your healthcare cover.

If you have gap cover through a group scheme, you may be able to convert that cover into your own name. If you have gap cover in your personal capacity, it will be unaffected. However, you should check to see if your new medical scheme benefits align with your gap cover benefits.

Check your new job’s group risk cover

If your current employer provides group life cover benefits such as life cover, disability cover, income protection, or funeral cover, ask your new employer if they offer similar benefits.

If your new employer does not offer benefits or does not offer the same level of benefits, find out if your current group risk insurer offers a conversion benefit. This means that you can convert the cover into your personal name, and you won’t be subject to any further underwriting by providing medical information or having medical tests.

Even if you are young and healthy, you should consider the conversion. The cost is likely to be cheaper than taking out cover in your own name because there’s no underwriting. You should always have disability cover and you may need life cover in future, but it will be more expensive to take out when you are older.

If your new employer also offers similar benefits, understand what they are and whether they meet your needs. A new employer may offer income protection insurance instead of lump sum disability cover or vice versa. This will affect your financial planning and should be assessed in light of any cover you have in your own name.

Your financial adviser can help with this decision by doing a full risk assessment of your situation.

Guard against lifestyle creep

A higher salary might provide a sense of accomplishment but resist the temptation to upgrade your lifestyle at the cost of everything else. It’s fine to budget for a few extra luxuries, but avoid making large financial commitments, such as buying a new car or moving to a more expensive suburb.

If you’re going to spend a bit more on your lifestyle, put the same amount into increasing your investments. In this way you build your wealth quietly, bringing you closer to your financial goals.