What steps do you need to take to collect your group insurance proceeds?
Rest assured, it's virtually hassle-free. As is the case with your state pension, there's very little you have to do yourself. Just keep in mind that the procedure will differ depending on whether the payer is your past or present employer:
- Your current employer will contact you a few months prior to your retirement date to go through the formalities with you. Your group insurance proceeds will be released to you when you retire, via your employer's pension institution.
- To collect the group insurance entitlements you earned with previous employers, you simply contact the pension institution once you've retired. As of 2017, your pension institution will be notified directly of your retirement by the federal government.
When can you collect your group insurance proceeds?
As a general rule, you collect your complementary pension benefits when you retire, i.e. on your (early) statutory retirement date. In some cases, you will be allowed to draw on your group insurance proceeds earlier. To find out whether you qualify, it's best to check with your employer for the details about your personal situation.
Like many who are nearing retirement, you may be thinking about purchasing a second home. But did you know that you can apply your group insurance towards the purchase, construction or renovation of real estate (e.g. a holiday home) if authorised in your pension plan regulations? And if your group insurance plan also includes death benefit coverage, you can pledge that amount to complete your purchase or renovation. For more information about these (and other) options, see the 'I'm building a home' section.
Lump sum or annuity?
Your pension plan regulations stipulate how you can collect your complementary pension benefits: as a one-time cash lump-sum payout or as a regular annuity for the rest of your life.
- Lump sum
Taking the amount as a one-time lump-sum payout is by far the most common option in our country. You simply collect the entire cash lump sum on your retirement date, less any withholding tax (see below). Once you get your cash, you can do whatever you want with it, save it, spend it or even help out your children financially – it's up to you. And let's not forget the associated tax benefits and implications. Keep in mind, however, that a single lump-sum cashout does not come with any inflation or cost of living adjustments. If you were to live for another 25 years after your retirement, you'd lose purchasing power over time. Also, depending on how investment savvy you are, it may not be easy to wisely manage such a large sum yourself.
If you take your group insurance proceeds as a lifelong annuity payment, you essentially get an additional source of income on top of your state pension. Payment frequency can be monthly, quarterly, semi-annual or annual. With an annuity, you can factor in adjustments for variables such as inflation and cost of living, but in general it's assumed that you'd need to live for another 25 years of so after your retirement for this option to be a better bet than a one-time lump-sum payout.
One more thing: if your pension plan regulations require you to take a lump-sum payment, you can always convert this into an annuity at a later stage. This way, you still have the option to top up your state pension yourself.