You have decided to leave your job where you have been contributing to the company pension or provident fund. What must happen to your retirement savings when you leave the company? For many employees this can be an uncertain time and there are often questions around when and if you can access these funds, or how to reinvest it to preserve what you have saved.
Bearing in mind that every investor’s investment goals and financial circumstances are unique, there are some general guidelines that can be applied to the withdrawal and transfer of pension and provident fund contributions.
Generally speaking, you will be required to leave your current pension fund when leaving your employer. However, the good news is that the money in your pension or provident fund, belongs to you and it is up to you whether you take the cash or transfer your savings to another fund.
If you are over 55 and resign, or you are dismissed or retrenched, you may retire from the fund. However, if you are younger than 55, you can only withdraw from your retirement fund and these proceeds are then referred to as a withdrawal benefit.
In this instance, you will be able to transfer the funds tax-free if you are transferring them to:
- your new employer’s pension or provident fund;
- an alternative pension or provident preservation fund;
- an alternative retirement annuity fund.
Alternatively, you can withdraw fully or partially, and pay tax as per the withdrawal lump sum tax table. See below.
Withdrawal Benefit – 2017 tax year (1 March 2016 – 28 February 2017)
|Taxable income (R)||Rate of tax (R)|
|0 – 25 000||0%|
|25 001 – 660 000||18% of taxable income above 25 000|
|660 001 – 990 000||114 300 + 27% of taxable income above 660 000|
|990 001 and above||203 400 + 36% of taxable income above 990 000|
Remember, however if you decide to transfer your money to your new company fund, you will likely benefit by paying lower (group) fees in comparison to a preservation fund, which is a product designed for individuals. Also, by remaining invested in a pension or provident fund, you have the peace of mind that neither you nor your creditors can access your investment until you leave your new employer, so from a savings discipline perspective, this may be a good option.
However, if you stay with your new employer until retirement age, you will have to abide by local tax laws with regards to how you can access that money. In that instance, if you have a pension fund, you will only be able to access one-third of the funds, the rest must be used to purchase an annuity. With a provident fund on the other hand, you can withdraw the entire amount as a cash lump sum.
When it comes to preservation funds, you are allowed to do one full or partial withdrawal before retirement, which will be taxed at your marginal tax rate at the time of withdrawal. In other words, you can opt to take a cash lump sum before retirement but as with a pension fund, you will be forced to buy an annuity if you are preserving through a pension preservation fund on retirement.