Preservation FAQ?

Who can transfer to a preservation fund?

Any member that is withdrawing from a fund as a result of resignation, dismissal, retrenchment or a fund termination. Retirements or mergers of funds do not offer this option.

Owing to the nature of the preservation funds, only monies from a pension fund can transfer to pension preservation fund and provident fund monies to a provident preservation plan.

What is required to transfer monies to a preservation fund?

Firstly, the existing employer must be a participant of the preservation fund that a member wishes to transfer his benefits to. Any new fund applies for participation at the installation stage. A minimum transfer value of R12 500 is required to transfer to a Preservation Fund.

How does one go about arranging the transfer to a Preservation fund? 

In most cases, before the pension fund receiving the withdrawal notification, the member has already contacted his financial adviser and made arrangements to transfer his value to the preservation fund.

However, the exiting fund requires the name of the fund, contract number and bank account details of the receiving fund. It is important to include a contact person to ensure that recognition of transfer form is completed and kept on record.

How long does it take to transfer money to a Preservation fund?

Transfers to a Preservation Fund will take up to 20 working days. The reason for this is that the two divisions have separate bank accounts. As a result, money is paid to the Personal Benefits division by an overnight batch run after being authorised.

Thereafter it goes through another overnight batch run to be allocated to the Personal Benefits account and then into the particular policy. Therefore it is imperative that the timing of these transfers takes the above process into account.

What are the tax implications on transfers to a preservation fund?

There are no tax implications on a transfer to a preservation fund. However, the fund administrator has to apply for a ‘nil’ directive before the transfer. Therefore it is still important to furnish the member’s tax details.

Are members allowed to make additional contributions to a preservation fund? No additional contributions are allowed to a preservation fund unless the monies are derived from the original fund as a result of surplus distributions etc.

What are the options available before and after transfer from a pension or provident fund?

Before transfer:

  • A member may not take a portion in cash and transfer the balance to a preservation fund upon withdrawal from a pension or provident fund. However, deductions made in terms of Section 37D of the Pension Funds Act are allowed before transferring to a preservation fund. It is important to note that these deductions will then be deemed to be the one withdrawal as discussed below.

After transfer:

  • Provided that the rules of the transferring fund allow it, the preservation fund rules allow the member the option of a single withdrawal of all or part of the accessible portion of the preserved benefits before retirement, subject to the payment of tax and withdrawal charges where applicable. The balance of any remaining benefit will not be available until retirement. Please note that this part or full withdrawal would be subject to tax.

What options are available at retirement age? 

The payment of benefits will be treated the same way as that of retirement from a pension or provident fund, namely, a maximum 1/3rd in cash and 2/3rd annuity for a pension fund and the full amount paid in cash for a provident fund.

Please note that at official retirement from all employment, a member has to retire from his preservation funds too. However, if he is still working at the normal retirement date of a particular preservation fund, he may not retire from that preservation fund.

Practical issues to consider when setting up a preservation fund policy.

Accessible amount: Accessibility effectively means the amount of money that can be taken out as a part or full withdrawal before the retirement date. An example of this is if the member was entitled to a vesting scale on withdrawal from his original fund, this portion would be the accessible amount i.e. the amount the member would have received had he withdrawn his benefit from the fund. The difference between this (the accessible amount) and the full share of fund would remain in the preservation fund until retirement. It is extremely important to ensure that the accessibility conditions are made clear at the installation stage of the policy.

Often, at withdrawal stage members are faced with inaccessible portions as a result of inaccurate information being supplied at the inception of the preservation policy. This, therefore, requires trustee resolutions etc. to change the accessibility conditions and could delay the payment of benefits from the preservation fund considerably.

Changes in legislation concerning minimum benefits now force all funds to pay out the member’s full share of the fund at withdrawal. Therefore, all benefits for any new policies should be loaded as fully accessible on the preservation policy. However, some funds may not have amended their rules at this stage, so it is best to check first.

Preservation of benefits:

When deciding to preserve benefits, you have a few choices and these are listed below:

  • Transfer to another Company’s Pension/Provident Fund
  • SARS tax clearance required
  • Advise Administrator timeously of details, but in any event, before the final workday.
  • Funds are converted to cash and transmitted to the new fund and take on the asset allocation of that fund.

Capital Preservation Fund

  • SARS Tax clearance required.
  • All paperwork to be submitted before your last working day.
  • Can be invested with most life companies and investment platforms.
  • One withdrawal allowable before retirement.
  • Flexibility in investment choice and asset allocation.

Retirement Annuity

  • SARS clearance required.
  • Flexibility in investment choice.
  • No withdrawals before retirement.
  • Choice in respect of platforms available, whether insured (life companies) or uninsured. (Unit trust type investments)
  • Applications must be submitted to the Administrator before your departure.

The default withdrawal mode per SARS rules is a cash pay-out unless otherwise stated on your withdrawal form.

With acknowledgement to Liberty Life

Preservation Funds Explained
Why a Provident or Pension Fund?