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MONEY CLINIC | Can I make a partial withdrawal from my preservation fund?

It is important to consider where we are in the interest rate cycle.

A Fin24 reader cashed out a third of his retirement fund and left R1.5 million in his preservation fund. He wants to know if he can make a partial withdrawal and how it will affect the state of his savings. He writes:

At 49, I resigned from my job and my pension fund was declared released at R100,000. What does this actually mean? When I resigned at 49, I cashed out a third and left R1,500,000 in the preservation fund until I was 55. Can I make a partial withdrawal from the preservation fund? What happens with the 100,000 rand released and what might be the status of my savings at 55?

Mariska Comins, technical support manager at PSG Wealth respond :

We will start with the first question relating to the released retirement fund of R100,000.

Under Regulation 38, which is part of the final pension fund regulations, pension and provident funds must retain a member’s accrued pension benefits in the pension fund upon termination of employment, or until the fund member chooses to withdraw their fund benefits in cash. or have it transferred tax-free to another pension fund. Essentially, a “contributing member” designates a member of the pension fund who has left the service of his employer but who has nevertheless chosen to leave his accumulated rights in the fund which will issue him a certificate of payment.

Although this contributing member no longer pays contributions to the fund, the member continues his membership and his membership share will remain invested in the portfolio of his choice. The ultimate benefit, payable to a member, is a combination of the fund’s contributions and the investment performance of the fund, net of fees and costs.

If a contributing member reaches age 55, they can withdraw from the fund or choose to postpone their retirement to a later date.

Now for the second question: when I resigned at 49, I cashed out a third and left R1,500,000 in the preservation fund until I was 55. Can I make a partial withdrawal from the preservation fund?’

It is not entirely clear whether a third party was removed at the time of retirement benefit resignation before the transfer to the presentation fund or after the transfer to the preservation fund was made.

In the case of a pension or provident fund, you can either:

* withdraw the entire value of the fund (subject to the pension fund lump sum withdrawal tax table) in cash upon resignation, or
* The total amount could be transferred tax-free to another employer fund, a retirement annuity or a preservation fund, or
* Withdraw a portion of the member’s benefits and transfer the balance to another approved fund, such as a preservation fund.

If an insured has transferred his pension benefit from a pension fund to a provident fund or from a provident fund to a provident fund, such as in the case of resignation, only one withdrawal is permitted. This is subject to the scale of deductions from the pension capital and is authorized by the pension preservation fund or the provident fund before retirement.

A holdback from a member’s benefits in a retirement fund before the balance is transferred to a preservation fund is not a payment to the member while in the preservation fund and is not considered a single payment. withdrawal of the member.

A member who has transferred his retirement benefit to a preservation fund on or after attaining normal retirement age in accordance with the rules of the fund, shall not be permitted to take a withdrawal benefit from the preservation fund unless the member emigrates.

No recurring contribution can be made to a preservation fund.

A member of a preservation fund can retire at age 55 or younger if they become permanently ill. There is no maximum retirement age from a preservation fund. In a retirement pension preservation fund, only one-third of the retirement benefit can be paid out as capital (unless two-thirds of the total value does not exceed R165,000).

From 1 March 2021, pension fund members will only be able to receive a maximum of one third of their retirement benefit in the form of cash capital. The balance of the benefit must be used to purchase a post-retirement income product (whether a life annuity, a life annuity or a combination of a life annuity and an annuity life) to provide income to the member (excluding accrued rights) similar to a pension funds and superannuation funds.

In conclusion, members should seek advice before a benefit is paid to them or a transfer is made on their behalf to another pension fund as tax must be calculated on the aggregate of all lump sum benefits of the pension fund taken previously (whether at the time of withdrawal and/or retirement, death and including severance pay). It is therefore important to realize that making a withdrawal before retirement will have an impact on the taxation of lump sums taken at retirement.

Questions may be edited for brevity and clarity.