Where your fund benefits increase in value – and remain accessible.

Get the most out of your fund benefits

Times have changed. People no longer remain with just one company for their entire working lives. And whether you resign to seek greener pastures, take a package, or your employer's pension or provident fund is dissolved, you face the problem of having to decide what to do with the benefit amount from your pension or provident fund. How can you make sure you get the most out of your hard-earned money?

You have three options

You can withdraw the benefit amount and use it for something you need now. But what about your old age? And you may have to pay more tax now than you would at retirement.

You could have the fund benefit transferred to a retirement annuity. The value of your money is preserved, but you can only access your funds after your 55th birthday. What is more, you lose the benefit of your completed years of service. Your years of service are used to calculate what part of the lump sum payout is tax-free. The smaller your number of years of service, the less tax benefits for a transfer to a preservation fund and the more attractive a transfer to a retirement annuity becomes, because if you have less than 20 years' service the tax-free portion at retirement will be greater if you have your fund benefit transferred to a retirement annuity. However, retirement annuities do not offer the one-off withdrawal benefit that preservation funds do.

If you get another job you can have your fund benefit transferred to the new employer's pension or provident fund. This can be done only if you start the new job immediately after terminating your service with your previous employer. However, this option does not allow you any access to or control over your accumulated benefit until you retire, are declared disabled or leave the employer's service.

Which option is best?

Each option has both advantages and disadvantages. And once you've made your decision you can't change your mind. You could regret it later if you don't consider all the relevant aspects very carefully.

What you need is a way of investing the fund benefit for your old age; a way in which it can increase in value but at the same time give you access to the funds in an emergency.

Sanlam Life has the solution: A Stratus policy in the Sanlam Preservation Pension Fund or the Sanlam Preservation Provident Fund

Now you can have your fund benefit invested in Sanlam Life's Preservation Pension Fund or Preservation Provident Fund. Just look at these benefits:

• Not only do you preserve your fund benefits, but the benefit of your completed years of service is also preserved until you retire. This could mean you have to pay less tax.
  
  
• You also have the flexibility of being able to choose from among three options later:
  
  
  
  • You retain the right to transfer your benefits to another pension or provident fund later.
    
    
  • Provided the rules of the original fund from which the money is being transferred do not restrict this, you can withdraw a one-off amount at any time and leave the rest for your retirement. If you make such a withdrawal, your preserved years of service are reduced pro rata. Therefore, taking the above into account, you can make such a one-off withdrawal only once during your membership of the preservation fund. If an amount is paid out before the benefits are transferred to the preservation fund, no benefit may be transferred to a preservation fund. The only exceptions to the above are the following:
    
    
    
    • Where the benefits were reduced beforehand in terms of section 37D of the Pension Funds Act, for example where the original fund granted the member a home loan or a guarantee, or where the member signed an acknowledgement of debt to his employer or where the latter obtained a judgment against him for theft, fraud or dishonesty; or
      
      
    • Where a part was transferred to a retirement annuity fund; or
      
      
    • Where a part of the benefit was paid out in terms of section 7(8) of the Divorce Act.
      
      
  • In the last-mentioned case, no subsequent withdrawals will be permitted in the preservation fund. The one withdrawal permitted from the preservation fund thereafter will also not be possible in the case of the first-mentioned, unless the transfer took place before 1 December 1997 and the Commission for Inland Revenue authorised it.
    
    
• When you retire, whether on pension or as a result of disability, you receive the full remaining benefit from the preservation fund.

And you can enjoy the flexibility and benefits of an investment in Stratus!

What about tax in the following cases?

·          Transfer of benefits between funds

Tax becomes payable when benefits are transferred from a pension fund to a preservation fund. Sanlam Life has therefore created separate preservation funds: The Sanlam Preservation Pension Fund for pension fund members and the Sanlam Preservation Provident Fund for members of provident funds. Your benefits can therefore be transferred tax free from a pension fund to the Preservation Pension Fund and from a provident fund to the Preservation Provident Fund. Transfers are not permitted from a pension fund to a preservation provident fund, or from a provident fund to a Preservation Pension Fund.

·          Withdrawal of benefits

If you withdraw your one-off amount from a preservation fund in terms of the above, the first R1 800 is tax-free. The rest is taxed at your average tax rate.

·          At retirement from a preservation provident fund

The full benefit can be taken as a lump sum, and part of the lump sum could be tax-free. The tax-free portion is calculated using a formula and is limited to the greater of R120 000 and R4 500 multiplied by the number of years of service for which you belonged to your original retirement fund. The rest is taxed at your average tax rate.

·          At retirement from a preservation pension fund

You may take a maximum of one-third of the benefit as a lump sum. This portion is taxed in the same way as the provident fund benefits.

The rest of the benefit that is not taken in cash is paid out to you as a pension. This pension is taxed liked normal income.

Preservation funds therefore hold clear tax benefits.

At retirement from a preservation fund your preserved years of service are taken into account when determining the tax-free portion of the lump sum, as years of service with your previous employer can be preserved in a preservation fund. This means that a larger part of the lump sum can be tax-free.

Sanlam's preservation funds offer ideal opportunity

Sanlam's preservation funds therefore offer you the ideal opportunity to:

·          preserve your years of service with a previous employer;

·          retain your full fund benefit and see it grow; and

·          have access to your benefits on a one-off basis.

Consult your adviser or broker

If you find yourself having to make a decision about your fund benefits – whether now or in the future – there's only one thing to do. Consult your Sanlam adviser or broker. In this way you can obtain expert advice and enjoy the peace of mind that comes from knowing you are getting the most out of your fund benefits when it really matters.

The role of the employer

In terms of the law, your employer must be registered as a participating employer of a preservation fund before your accumulated pension or provident fund benefits may be transferred to that fund. Make sure that your employer is registered before your termination of service.

Contact details:
Sales / Product related information: 0860 223 390
Fax: (021) 947-9864
Information on existing policies: 0860SANLAM / 0860 726 526
Fax: (021) 947-9440
International tel: +27 21 916-5000
International fax: +27 21 947-9864
E-mail: online.advice@sanlam.co.za