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Retirement Planning
Friday, April 3, 2015 - 02:16
More flexible

Currently the Income Tax Act does not allow a member to preserve his retirement benefit or postpone the date from which he wants to receive it. When the last day of work arrives for these employees, their retirement benefit becomes payable. The retirement fund then has to apply for a tax directive on the lump sum part of the benefit, deduct the tax and pay it to SARS. But if the fund does not know which part of the employee’s benefit he wants to take as a lump sum, the fund cannot apply for the directive. The fund can then not do what the law requires it to do – it cannot deduct the tax and pay it over to SARS.

“The recently published Taxation Laws Amendment Act changes the position for the employee and the fund,” says Hettie Joubert, Legal Adviser Retirement Solutions, MMI Investments and Savings. “From 1st March 2015, an employee will be able to choose from which date he wants to receive his retirement benefit, but only if the rules of the fund allow him to do so. This means that if his fund’s rules permit it, the employee would be able to postpone the date from which he wants to start receiving both the lump sum part and the pension part of his retirement benefit.”
This is illustrated by the following example:
• The employee’s normal retirement age is 65 as specified in the fund rules.
• The fund rules allow for the member to postpone the date on which he wants to receive his retirement benefit.
• When the employee reaches his normal retirement age, he decides that he does not want to take his retirement benefit then, but would rather take it at a later stage. The employer must still let the fund know that the member retired from employment and must indicate that the employee does not want to take his retirement benefit yet.
• On his 68th birthday, the member elects to start taking his retirement benefit and lets the fund know. The fund then applies to SARS for a tax directive on the date that the member makes his election, based on the amount of the lump sum benefit at the date of election.

“Unfortunately the Amendment Act does not allow for transfers of retirement benefits into preservation funds, so the employee can only keep it in the same fund,” says Joubert.
Employees who want to postpone the date on which they start receiving their retirement benefit should consult with their funds to see if the rules allow for this. Some funds, like the FundsAtWork Umbrella Funds, even allow for an employee who keeps on working with the same employer after reaching his normal retirement age to stay in the fund and continue with the contributions to the fund, if the employer agrees.

Copyright © Insurance Times and Investments® Vol:28.4 1st April, 2015
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