What access do you have to your benefits before retirement?
Members often ask if they can withdraw their benefits from the fund before they turn 55. This article sets out when a member would be able to do so.
The Income Tax Act allows access to retirement annuity fund and preservation fund benefits if the member:
- is 55 years old,
- is medically disabled,
- has been a non-resident for at least 3 consecutive years on or after 1 March 2021, or
- has left the country on expiry of his visa or work permit.
A member of a preservation fund is allowed to make one withdrawal from
his benefit before retirement, if the benefit that was transferred into the
preservation fund was a benefit that he became entitled to before he
reached the normal retirement age in the transferring fund.
A member of a retirement annuity fund is allowed access to his benefit before retirement if the total benefit is less than the prescribed minimum, which is R15 000.
When the member reaches the age of 55, he may access his retirement benefit.
A member of the Momentum Retirement Annuity Fund and the Momentum Pension Preservation Fund may only take one third of his retirement benefit in a lump sum; the rest of the benefit must be used to buy an annuity (a pension). If, however, the total benefit in the Fund is R247 500 or less, the member can take the whole benefit in a lump sum.
A member of the Momentum Provident Preservation Fund may take his total retirement benefit in a lump sum if the benefit transferred into this fund was transferred before 1 March 2021. If the benefit was transferred after 1 March 2021, the same rules as those applying on a pension preservation fund will apply. The member can still use any portion of the retirement benefit to buy an annuity.
Early retirement due to medical disability
A member may retire before age 55 if he is permanently incapable of carrying on his or her occupation due to sickness, accident, injury, or incapacity through infirmity of mind (hereinafter referred to as medical disability / medically disabled).
The following conditions must be met for a member to claim his retirement benefit due to medical disability:
- The member must have been in an occupation before he became medically disabled.
- The disability must result in him being permanently incapable of carrying on with his job, which in turn means that his job must have been terminated as a result of the disability.
The member can access his medical disability early retirement benefit at ANY time after the date on which he becomes medically disabled.
A disability benefit is still a retirement benefit, which means that if the member is on the Momentum Retirement Annuity Fund or the Momentum Pension Preservation Fund, a maximum of one-third may be taken as a lump sum, provided that if the total benefit is R247 500 or less, it can all be taken as a lump sum.
Cessation of tax residency
A member of the Momentum Retirement Annuity Fund who has been a non-resident for at least three consecutive years on or after 1 March 2021 can access his benefit before retirement.
A member of the Momentum Pension or Provident Preservation Funds may only access his benefit due to cessation of tax residency if he has already taken his one pre-retirement withdrawal.
The Income Tax Act makes it clear that this benefit can be taken before retirement date, which is the date on which the member elects to retire. This means that even if a member has already reached the age of 55 but has not yet elected to retire, he will be able to access this benefit. If the member has already reached 55 and has also already elected to retire, he will not be able to access his full benefit due to cessation of tax residency. He will then have to take his benefit as a normal retirement benefit.
The benefit will be paid as a lump sum.
Expiry of visa or work permit (repatriation)
An immigrant is someone who comes into South Africa either temporarily for work or permanently. If that immigrant becomes a member of the Momentum Retirement Annuity Fund and then returns to his country of residence when his work permit or visa expires (repatriates) before retirement, he can access his benefit.
A member of the Momentum Pension or Provident Preservation Funds may only access his benefit due to repatriation if he has already taken his one pre-retirement withdrawal.
The benefit will be paid as a lump sum.
Withdrawals on preservation funds
Transferred benefit was pre-retirement benefit
A member of the Momentum Pension and Provident Preservation Funds (the preservation fund) who transferred a pre-retirement benefit such as for example a withdrawal or liquidation benefit to the preservation fund is allowed to make one withdrawal from the preservation fund during his membership of the preservation fund.
If the member made a withdrawal from his pension or provident fund before transferring to the preservation fund, that does not count as his one preretirement withdrawal. Examples of this are a member who decided to take a part of his withdrawal benefit in his pension fund as a lump sum and transfer the balance to the preservation fund, or a member who had an outstanding housing loan at the time of his withdrawal from his pension fund which the pension fund settled when he withdrew from the pension fund. However, if the member transferred from another preservation fund and he has already made a withdrawal from that preservation fund before transferring to the preservation fund, that does count as his one preretirement withdrawal. He will then not be entitled to another withdrawal from the preservation fund.
The right to make a pre-retirement withdrawal applies separately to each payment or transfer to the preservation fund. This means that we should have a separate record or account for each amount that the member transferred into the preservation fund. If he for instance resigned from three employers and transferred his withdrawal benefits from three different funds to the preservation fund, he will have three different records in the preservation fund. He may then make a pre-retirement withdrawal from each one of these three records. However, if the amount that he withdraws is more than the amount in one of his records, it will result in him restricting his future pre-retirement withdrawals.
This is best illustrated by way of an example.
- Mr M resigned from employer A and transferred his R10 000 withdrawal benefit from fund X to the Momentum Pension Preservation Fund. This will be record 1.
- Two years later he resigned from employer B and transferred his R20 000 withdrawal benefit from fund Y to the Momentum Pension Preservation Fund. This will be record 2.
- A year later he resigned from employer C and transferred his R15 000 withdrawal benefit from fund Z to the Momentum Pension Preservation Fund. This will be record 3.
- He now withdraws R25 000.
- None of the three records has R25 000 in it. The withdrawal therefore has to be made from two records.
- If the preservation fund takes the R10 000 in record 1 and uses R15 000 of the R20 000 in record 2, it will mean that the member now only has one more withdrawal available, and that withdrawal must be made from the R15 000 in record 3.
- If the preservation fund takes the R10 000 in record 1 and uses the full R15 000 in record 3, it will mean that the member will be entitled to make another withdrawal from record 2, which has a value of R20 000.
- In this example, it would be better to split the R25 000 withdrawal between records 1 and 3 instead of between 1 and 2, because the member will be left with the option of making a withdrawal against a bigger amount.
Transferred benefit was post-retirement benefit
From 1 March 2019, a member is entitled to transfer his post-retirement benefit in a pension or provident fund to a preservation fund. The member will however not be entitled to the one preretirement withdrawal option that is available to a member who transferred his withdrawal benefit to the preservation fund.
If the member has reached the normal retirement age in his previous fund and transferred his retirement benefit to the preservation fund, he will not be entitled to any pre-retirement withdrawal benefit from the preservation fund. His only option is to take that benefit as a retirement benefit. If for example Mr M in the example above transferred his retirement benefit of R100 000 from fund S to the Momentum Pension Preservation Fund, he will not be allowed to take any part of that benefit as a pre-retirement withdrawal. He will therefore not be allowed to request a pre-retirement withdrawal for R50 000, as the records from which he can make pre-retirement withdrawals only amount to R45 000.
Benefit under prescribed minimum – retirement annuity funds
When the total benefit in the Momentum Retirement Annuity Fund is less than the prescribed amount, the member may access his benefit.
It is very important to note that the TOTAL benefit in the Fund must be less than the prescribed amount. If the member has more than one policy in the same fund, for instance one on Wealth and another on Investo, the value of both the policies must be less than the prescribed amount.
The prescribed amount currently is R15 000.
The benefit will be paid as a lump sum.
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