The average South African will change jobs once every 8 years. Whilst it may be beneficial for your career to change employers – it is very important to try and preserve your retirement fund benefits every time you change employer.
Follow the check-lists provided and then make sure you read the “Did you Know” section for valuable information on your options when you leave the Fund before normal retirement age.
|To do List||Why this is important||Task Completed?|
|Make sure your new employer’s fund allows for retirement fund transfers||One of the best ways to preserve your retirement benefits is to transfer it to your new employer’s fund. Make sure your new employer offers a retirement fund and make sure they will accept transfers. Pension Fund money must be transferred to a Pension Fund and Provident Fund money to a Provident Fund or Pension Fund to ensure that the benefits are transferred tax free.|
|Know what the value of your withdrawal benefit is||Even if you have been a member of the Fund for a short period and you don’t consider your benefit to be that substantial, it is important that all benefits no matter how small are preserved for the purpose of retirement savings.|
|Talk to an accredited financial adviser||Speak to your financial adviser about the various options and products you can use to preserve your withdrawal benefits.|
|Obtain quotes to purchase preservation products||It is important to obtain at least three quotes from various insurance companies so that you can compare products and costs.|
|Preservation options||Make sure that you know about all the preservation options. See “Did you know” below.|
|Make sure your tax affairs are in order||The speed of cash payouts is limited by the need to obtain a directive from SARS that instructs the fund as to how much tax must be deducted. If your tax affairs are not in order this could take a long time.|
|Complete the withdrawal claim form||You can only complete this form when you have decided what you want to do with your withdrawal benefit. Once completed this form must be handed in at your Human Resources office.|
|Speak to your Bursar if you feel unsure about your options.||If you feel unsure about your options you are welcome to speak with your Bursar.|
WHAT ARE YOUR OPTIONS WHEN YOU LEAVE THE FUND?
You may transfer the money to a retirement annuity (RA).
There is no tax on a transfer of this nature. A retirement annuity is a privately registered pension fund. The advantage of the RA is that further contributions can be made to the RA. The disadvantage is that such a transfer has certain limitations that make your money less accessible at retirement i.e. only up to 1/3 may be taken in cash at retirement. The funds cannot be touched until you reach age 55 and then only one third is available in cash. The balance must be used to purchase a pension (annuity) from a registered insurer unless the total value of the fund at 55 or older is R75, 000 or less, in which case it may be taken as a lump sum (under current tax legislation).
You may transfer the money to a preservation fund.
There is no tax on this transfer either. The pension benefits must go to a preservation pension fund and provident benefits must go to a preservation provident fund. Members who take this option will be able to make one cash withdrawal from the preservation fund before age 55. From age 55 on you may retire as you would have from a normal pension and provident fund.
You may also transfer the money to the retirement fund of your new employer (if this is permitted in the new employer’s fund rules).
Should you take up new employment and the employer provides an approved retirement fund you may transfer your benefits to your new employer’s fund. There is also no tax on this transfer provided that pension money is transferred to a pension fund and provident fund money to a provident fund. Where pension money is transferred to a provident fund tax will be payable.
Most funds allow people to transfer money from their previous employer but it is extremely important that you understand the rules of any new fund before taking this course of action.
You may take the cash.
This should be your last option. You will have to pay income tax according to set tax tables (as shown below) except for the first R22,500 that is tax-free. The new tax-free threshold of R 22,500 will be cumulative and will apply to the total amount of a member’s withdrawals from pension and/or provident funds over the member’s lifetime. In addition, any cash withdrawal taken during your working life will reduce the tax free amount of your ultimate retirement benefit.
Please bear in mind that accumulating retirement savings is a long term commitment. Using these savings for other purposes prior to retirement may result in financial strain at retirement. This option should therefore be your last resort.
What about divorce orders?
Since 2007, there have been frequent changes to the laws affecting the distribution of benefits from retirement funds as a result of a member’s divorce.
Prior to September 2007, if you divorced, your former spouse was entitled to half your resignation benefit/fund credit at the date of your divorce based on your service from when you got married until the date of your divorce. However, your spouse could not receive a cash payment until you had physically left the Fund either through retirement, death or withdrawal. In addition, the legislation did not require that interest be added to the amount allocated to your spouse.
The law changed with effect from 13 September 2007. The “clean break principle” now applies in that your spouse can get immediate access to his/her portion of your benefit. The benefit is also now taxed in the hand of the former spouse.
- Draw up the Settlement Agreement after consulting with your personal financial advisor.
- The non-member spouse should submit the divorce order and Settlement Agreement to the Administrator. At the same time he/she should elect a payment in cash or a transfer to another fund. If he or she fails to indicate her election, the fund will, within 45 days, request him/her to make an election.
- The former spouse has 120 days (4 months) to consider if he or she would like the benefit paid as cash or transferred to a retirement fund. He or she should seek personal financial advice during this time.
In terms of the Pension Funds Act, a divorce order should comply with the following, in order for it to be binding on a retirement fund to effect a deduction:
- The date of the divorce order must be during the course of the individual’s membership of the fund.
- It must state the correct name of the fund concerned or enough information must be given to identify the fund.
- The benefit payable to the non-member spouse must be clearly stated.