In an effort to reply your query, we have to take a look at choices obtainable to people after they go away their employer.
Within the occasion of resignation or retrenchment, you could have the next choices:
- Withdraw your profit in money;
- Elect to maneuver your cash right into a preservation fund or a retirement annuity; or
- Switch your profit to your new employer’s pension or provident fund.
Chances are you’ll withdraw your profit in money, making an allowance for that the funds shall be taxed as per the withdrawal profit desk. This feature is appropriate for people who could also be in want of funds for numerous causes.
Chances are you’ll elect to maneuver your cash right into a preservation fund or a retirement annuity, thereby preserving your capital on your retirement years. A preservation fund permits one withdrawal previous to retirement (topic to tax) however funds in a retirement annuity aren’t accessible previous to age 55.
You might also switch your profit to your new employer’s pension or provident fund, the place you’ll not have entry to the capital till such time as you allow that employer. This feature is due to this fact not appropriate in your state of affairs the place you want entry to the funds and we suggest that you simply contact your fund administrator or HR division as quickly as attainable to halt the switch whether it is nonetheless attainable.
We all the time encourage preserving your profit for retirement (possibility 2).
In case your ex-employer’s fund permits, it’s possible you’ll take a money withdrawal immediately from the fund and switch the stability to a preservation fund, successfully combining choices 1 and a couple of.
If the principles don’t permit for the profit to be break up, you possibly can switch the total profit to the preservation fund after which withdraw the mandatory funds from there. You will need to notice that the withdrawal shall be topic to tax and the stability of the capital might want to stay within the preservation fund till you attain age 55.
The money withdrawal shall be taxed in accordance with the withdrawal tax desk:
|First R25 000||Tax-free|
|R25 001 to R660 000||18% of the quantity over R25 000|
|R660 001 to R990 000||R114 300 + 27% of quantity over R660 000|
|R990 001 and above||R203 400 + 36% of quantity over R990 000|
The switch to a pension preservation fund shall be tax-free.
How does a pension preservation fund work?
A preservation fund is a retirement fund, which preserves proceeds from a pension or provident fund the place an individual leaves their employer previous to retirement, for instance on resignation. These aren’t occupational funds, and no ongoing contributions could also be made to the preservation fund.
Transfers to preservation funds don’t incur any tax and the expansion inside the fund can also be freed from tax, making them a really tax-efficient funding.
When reaching retirement age (55), it is possible for you to to entry one-third of your capital as a money lump sum (topic to tax) and the stability shall be utilized to buy an annuity, which is a recurring revenue that shall be paid to you for the remainder of your lifetime.
‘One withdrawal rule’ on preservation funds
Preservation fund members are allowed one full or partial withdrawal from their capital earlier than retirement. As talked about above, the withdrawal out of your preservation fund shall be taxed in accordance with the retirement fund withdrawal tax desk.
People are allowed to have a couple of preservation fund and shall be permitted one full or partial withdrawal on every respective preservation fund.
We due to this fact suggest that you simply cease the switch strategy of your pension fund as quickly as attainable if you’re nonetheless in a position to, to be able to offer you time to seek the advice of with a monetary advisor to think about the perfect route ahead as you will be unable to think about choices 1 and a couple of (or a mixture thereof) as soon as the funds are transferred to your new employer’s fund.
Please don’t hesitate to contact us for additional data, detailed evaluation and steering when it comes to the choices obtainable to you. Alternatively, it’s possible you’ll contact your monetary advisor to debate the advice above.