Question:
If I change my job and I draw part of my pension fund (for example, R100 000) to improve my cash-flow by settling some debts, will it be a good strategy and what will the tax payments payable be? I would also want to re-invest the remaining funds in a retirement annuity for 10 years. Will that be the best method of investment?

Answer:
If you take R100 000 out of your pension fund to settle your debts you will pay your marginal rate of tax on the withdrawal. So if you pay 40 percent tax, you will lose R40 000.

Generally speaking this is not a good idea. The question is, will R40 000 pay off R40 000 of interest charges? Probably not. While paying off debt will reduce monthly payments, using pension money is robbing you of the future growth that money would have if it is left untouched. You should rather pay debt from income.

If you are moving to a new job and better salary take the increased amount and put it towards paying off debt. You need to re-invest your pension into some kind of preservation plan so you don?t get hit with tax. You will need to see a financial advisor for this.