Pre-retirement withdrawal from retirement funds

Investec pre-retirement withdrawal
Pre-retirement withdrawal from retirement funds 

Who qualifies for such a withdrawal?
• A member of a retirement annuity fund, pension preservation fund or provident preservation fund who has discontinued his/her contributions before his/her retirement date and where he/she has formally emigrated from South Africa, with such emigration having been recognised by the South African Reserve Bank for the purposes of exchange control;
• A non-resident member of a retirement annuity fund, pension preservation fund or provident preservation fund who was employed in South Africa on a contractual basis under a visa and whose visa has expired. Only on the expiry of the visa can the member apply for the withdrawal;
• The withdrawal is subject to the fund’s rules – please note that the funds rules may not yet have been updated to allow for withdrawals in all instances listed above.

How much may be withdrawn?
The full benefit may be withdrawn prior to the retirement of the member.

What are the tax implications?
The lump sum withdrawal is regarded as a lump sum benefit as contemplated in paragraph 2(1)(b)(ii) of the Second Schedule to the Income Tax Act and remains taxable as a withdrawal benefit. 

The following tax table will apply:
 Taxable income (R)Tax liability
0-25 000 – 0% of taxable income
25 001-660 000 – 18% of taxable income above R25 000
660 001-990 000 – R114 300 + 27% of taxable income above R660 000
990 001 + – R203 400 + 36% of taxable income above R990 000

To calculate the tax in respect of a withdrawal lump sum:

Step 1: Add the current lump sum to all previous lump sums* and apply current withdrawal tax table.
Step 2: Add all previous lump sums* and apply current withdrawal tax table.
Step 3: Answer in step 1 minus answer in step 2 = tax payable on current lump sum.
* Only retirement lump sums after 1 October 2007, withdrawals after 1 March 2009 and severance benefits after 1 March 2011 must be taken into account.

The fund must apply for a tax directive and attach various supporting documents depending on the reason for withdrawal. For example, in respect of an emigration withdrawal, the fund will need to send SARS a letter from the Authorised Dealer to confirm that the emigration was recognised by the South African Reserve Bank for the purposes of exchange control. For repatriation, one of the supporting documents required by SARS is a copy of the certificate of residence obtained from the tax authority of the country in which the member resides or is employed.

What are the exchange control implications?
In terms of withdrawals due to emigration, the amount withdrawn will form part of the person’s emigration allowance.

Should you have any further queries, please do not hesitate to contact your Investec investment consultant or our Client Service Centre on 0860 500 100. 


  
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