Can you access money?

RETIREMENT: HOW MUCH CAN YOU TAKE AND WHAT TO DO WITH THE REST

You can transfer your entire pension fund to a preservation fund, no matter what the value of the fund is – tax free.

AMoneyweb reader asked the following question: My uncle took early retirement at 55. Can he access more than one third of his pension fund and invest it in different portfolios, or can he only access one third of the pension fund money and has to use the rest to buy a retirement annuity?

Mike Lombard, owner at Pfire and PfireExplore, answers:

From 55 years on, your uncle can “retire” from his pension fund. On his retirement he has the following options:

He can transfer the entire pension fund to a preservation fund, no matter what the value of the fund is – tax free. Once it’s in this preservation fund he can select multiple investment portfolios that match his risk profile to continue to grow his money until he needs access to it. The purpose of the preservation fund is to preserve the money so that it can be cashed in at a later date. If your uncle does not need access to any of the funds now, this is the ideal place to park it.

He can cash in his entire pension fund, provided the balance of the fund is below R247 500. This will be subject to income tax.

If his pension fund is more than R247 500, he can withdraw up to a third of the fund in cash and the balance of the funds (two-thirds) must be used to purchase a compulsory annuity. The compulsory annuity will then pay him an annuity (or pension) each month; (it

2018 tax year (March 1 2017 – February 28 2018)

can be paid quarterly or annually too). This payment is also subject to income tax.

Whether he draws a third in cash or is able to withdraw the full amount, such a lump sum withdrawal will be subject to income tax. Sars also provides for a portion of the lump sum withdrawals to be exempt from tax. The rates in the table will apply, if he hasn’t previously withdrawn or retired from any other retirement fund. If he has, this will affect the tax on his current retirement from his present pension fund.

The pension or annuity he’d receive from the compulsory annuity mentioned before is deemed to be normal income and will be added to any other income he may be receiving and be subject to normal income tax.

If he chooses to place all or part of his pension in a compulsory annuity, there are different options, benefits and underlying investments to choose from. It’s important that he meet with a financial planner to ensure he understands the choices available and how this will impact his money.