WHAT THE REFORM MEANS FOR PROVIDENT FUND MEMBERS
As of March 2015, provident funds are treated more like pension funds. But this does not mean the end of provident funds.
Prior to the reform, pension fund members could receive a third of their total benefits in cash, while two-thirds were paid out as pension for the rest of the member’s life. The provident fund member, on the other hand, could get one withdrawal before retirement and their full benefit paid in a cash lump sum.
With the new reform, a member aged 55 or older as of March 2015 – when the reform was implemented – will not experience any changes in access to their funds. Such provident fund members will still be entitled to the benefits of the provident fund structure as we currently know it, says Butchart.
If the retirement fund member had not reached the age of 55 on the implementation date, then the vested value in their current funds will be notarised. “That portion of your funds, as well as the growth on that portion of the funds, will be dealt with in the applicable tax dispensation as was previously the case. Additional premiums and growth after the effective date will be dealt with as per the new tax dispensation and will need to be annuitised at retirement in the same manner as a pension fund,” says Butchart.