You have handed in your resignation, you are excited about you next move then HR hands you forms to complete on what you want to do with your Pension/Provident fund. What do you do? What options do you have?
Whatever the reason you are leaving your current employer for, you need to make the decision on what to do with your retirement fund.
Here are your options:
- Transfer your pension/provident fund to your new employer
If you are starting a new job and your new employer has a pension or provident fund, you can ask to transfer your funds to your new employer. This transfer is tax neutral therefore you will not be taxed.
Be aware though, that you can only do the following transfers without paying tax:
- From a pension fund to another pension fund
- From a provident fund to another provident fund
- From a provident fund to a pension fund
- Transfer to a Retirement Annuity(RA)
This move is also tax neutral. If you have an existing RA, you can transfer the funds there or alternatively open a new one. I would suggest that before you transfer to an existing RA, you check its performance and costs first. You don’t want to put your money in a non-performing and costly investment.
You must note that, with a RA, you cannot access the funds until you are at the age of 55. I believe this is for your benefit, you don’t want to use up your retirement money before you retire! An RA also has tax benefits to it too.
- Transferring your funds into a Preservation fund.
What is a Preservation fund?
It is a retirement fund in terms of the Pensions fund Act. It allows you to transfer your Pension or Provident fund when you leave your employer. The transfer is tax neutral as well.
Unlike with the Retirement Annuity, with a Preservation fund, you do have an option of one withdrawal, either the full amount or part-withdrawal from the preservation fund. If you ever decide to exercise your option to withdraw from your preservation fund, you can never touch those funds again until the legal retirement age of 55.
- Withdraw your funds in cash
It’s unfortunate that a lot of people go with this option. Draw your funds in cash and pay a heavy tax bill. Oftentimes people say they want to pay their debts/ liabilities with these funds, commendable to want to pay off your debts but now you have also just robbed yourself off a couple of years of savings!
If you have never taken any cash before from your pension/provident , the first R25,000 is tax free, then tax is charged on a sliding scale.
Please see the table below:
Tribe, what option have you excised when you left your employer? What impact has it had on your future for retirement?