Pensions

PENSION FUNDS

How does it work?

Whilst RA’s are retirement-savings products aimed at self-employed individuals (or those who want to augment their existing employer-offered retirement savings vehicles), pension funds (and provident funds) are available to formally employed individuals in the form of a pooled retirement fund offered by their employer.

Contributions to a pension fund are tax-exempt for the employee, but the proceeds are taxed when paid out in future. This serves as a savings incentive offered by governments to encourage people to save for their old age instead of becoming a burden on the state.

Should an individual leave the employment of the company before the official retirement age – due to dismissal, retrenchment or resignation – the proceeds of their pension savings in the employer’s fund can be either:

  • cashed in (in part or in full)
  • or transferred (in part or in full) to a preservation fund (see further down). 

However, if the employee stays with the company all the way to retirement age, and then officially retires from a pension fund, the investor can only take a once-off lump sum pay out of their pension savings to a maximum of 1/3rd of the value of their funds at that point. The balance (2/3rds) has to either stay in the fund (if allowed by the fund rules) or go into a Living Annuity (where it will be stuck until death or slowly depleted by way of maximum annual withdrawal limits).

 

The Preservation Fund Option:

A preservation fund serves as a savings fund into which proceeds from a pension or provident fund are paid. It is essentially a ’parking place‘ from where the funds can be moved into another retirement product at a future date (e.g. a Living Annuity). It ”preserves” retirement investments and is tax neutral.

If transferred in full directly into a preservation fund  (i.e. no withdrawal made), one single withdrawal can still be made from a preservation fund at a future date – either in part or in full. This is a benefit of a preservation fund over for example, an RA, where the funds will be stuck until 55 (and then only 1/3rd available). On the other hand, if transferred only in part (i.e. a withdrawal had in effect already been made) the funds will be stuck until retirement.

How can E8 help?

Once funds have been cashed in (either the full or 1/3rd Pension Fund option, or one full Preservation Fund withdrawal if eligible), the cash can be taken abroad as a foreign investment allowance. This is a relatively simple process via your bank. We can help you to understand and do that: > Exchange Control And Your Assets/Cash 

On the other hand, if the funds are in a Preservation Fund it may be possible to convert the Preservation Fund into a Retirement Annuity, and then to cash out the RA by way of the Formal Emigration route provided for in SA’s legislation (see Retirement Annuity in the menu left). We can help you to understand the conversion process, and thereafter provide all the administrative tools (information, individually tailored processes, all necessary documents) and assistance for you to cash out the RA in full and at any age: 

  • simple: Once you understand the process the red tape is easy to navigate, and we hold your hand all the way.
  • cheap: And if you do not succeed, we will return the small fee for our service.
  • safe: We provide the tools for you to do it yourself. We do not act as intermediary, we do not ask for, nor hold, any of your personal financial information,  and there are no hidden costs. 

Read more here: > How will E8 assist me?