Understanding when you can access your retirement funds
19 Oct 2017
Can members withdraw from an occupational retirement fund without leaving the company? Retirement funds provide means for employees to save for their retirement years. However, only about 6% of South Africans can maintain their standards of living in retirement. To compound the problem, due to high costs of living and rising debt, fund members are increasingly looking to access their retirement funds as a solution.
Other members resign from their posts with the hope of accessing their retirement savings, only to re-join the same employer immediately. Reality is that members can only access their money when their employment is genuinely terminated or when the fund is terminated. When members are eligible and have joined the fund, they cannot simply withdraw or retire from the fund. They have to leave the service of the employer through resignation, retrenchment, dismissal or retirement as provided for in the fund’s rules, before they are entitled to fund benefits.
Membership of retirement pension or provident fund will terminate only when employment is genuinely terminated or when the fund is terminated in terms of Pension Funds Act.
If the members do withdraw from the fund without leaving the company, the continued approval of the fund by SARS will be jeopardised. In terms of Section 1 of the Income Tax Act, the definition of a “pension fund” or “provident fund” requires certain criteria to be met in order for the fund’s rules to be approved, these include:
- That the rules of the fund provide that membership of the fund throughout the period of employment shall be a condition of the employment by the employer. This means that a new employee joining the service of the employer, who is eligible to be a member of the fund, cannot decide not to join the fund. Where the employee is already on the fund, he or she cannot simply withdraw from the fund to gain access to his or her retirement savings; and
- That employees who were employed by the employer immediately prior to the establishment of the fund, may apply within a period of not more than 12 months from the commencement date, to be permitted to become members of the fund. This means that if a person is employed and there is no pension or provident fund in place at work, and a fund is later set up by the employer, all employees who were employed before the commencement of the fund can apply to join the fund within 12 months. These employees will not be obliged to join the fund if they choose not to join.
The draft Taxation Laws Amendment Bill of 2017 pro-poses an amendment to the above provisos, namely to re-move the 12-month limitation on joining a newly established pension or provident fund. This is to encourage employees to contribute towards their retirement and remove practical difficulties so that employees are allowed to join a newly established pension or provident fund at any time, subject to the rules of the fund.
Further, in terms of Section 13 of the Pension Funds Act, the rules of a fund are binding on the fund, its members and its officers, and most occupational retirement funds contain in their rules that all eligible employees must remain a member of the fund while employed by the employer who participates in the fund.
It is also important to note that membership of an occupational retirement fund is compulsory for all qualifying employees. The employer must make membership in the occupational retirement fund a condition of service for all qualifying new employees and is obliged to ensure the qualifying employees remain members of the fund throughout their employment.
To find out more about your pension or retirement options with your employer, contact Liberty Corporate on +27 11 408 2999 or email us at LC.CONTACT@liberty.co.za.