Pension, provident and preservation funds
Providing expert assistance for expats on how to access funds from South African pensions.
What can you withdraw from a pension fund?
If you reach your retirement age (generally determined in your employment contract), you’ll have limited access to your pension fund. A maximum of one third will be available as a lump sum, which will be subject to tax by applying the SARS retirement lump sum tax table. The remaining funds in the pension will have to be applied to provide a monthly pension – also fully taxable. You can also choose to apply the full fund value to provide for the pension, so it’s not compulsory that a lump sum must be taken.
What can you withdraw from a provident fund?
A member can access the full fund value as a lump sum. However, you can elect to only take a portion as a lump sum and to apply the remaining funds to provide for the monthly pension or to apply the full fund value towards providing your retirement income. The lump sum will be subject to tax by applying the retirement lump sum tax table and the monthly pension option, if applicable, is also fully taxable.
What can you withdraw from a preservation fund?
A preservation fund serves as a savings vehicle into which proceeds from a pension or provident fund are paid. The only purpose of a preservation fund is to house and preserve proceeds from pension or provident funds. It’s a South African retirement fund and governed by the South African Income Tax Act and the Pension Funds Act. Preservation funds in South Africa are offered by insurance companies.
Proceeds are transferred to a preservation fund when you leave your job because you’ve been dismissed, retrenched or you’ve resigned. There is no tax consequence on the actual transfer, this part of the transaction is tax-free.
Once the funds are transferred into the preservation fund, you, the member of the preservation fund will be entitled to make a single withdrawal from the fund before your retirement. That means it’s possible to access part of, or the full fund value in the preservation fund prior to retirement. Once you’ve used your power of withdrawal, you will not be able to make another until you reach retirement age. (It’s useful to note that a withdrawal is possible per fund source transferred into the preservation fund.)
If the member retires from the preservation fund, the rules applied to retirement in the event of a pension preservation fund will be the same for the pension fund. In the event of a provident preservation fund, it will be the same as a provident fund.
From 1 March 2019, a member will be able to gain access to the funds in a preservation fund due to emigration or the cessation of their visa. This will be possible even if the one withdrawal option has been used – if it is prior to retirement.
What is the process to access South African pension/provident/preservation funds?
The fund value needs to be obtained from the specific fund administrator. Your eligibility to withdraw any lump sum from a fund will depend on:
- Legislative limitations.
- The specified rules for the fund.
- What type of fund it is.
- Any previous withdrawals you’ve made.
- Your age.
- Your residency status while contributing to/withdrawing from the fund.
A withdrawal application must be submitted to the fund. After an assessment of your eligibility to receive the cash in the fund, the fund administrator will pay the after-tax amount into a South African bank account.
This net amount can then be remitted offshore by any local bank using your foreign investment allowance.
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