While the legislative wheels of change turn to allow for early withdrawal of pension funds, National Treasury has requested patience from individuals who are eager to withdraw a portion of their retirement savings, to allow for the necessary public participation and parliamentary processes to be followed. This is to ensure that due consideration is given to providing emergency access to savings in a way that does not compromise an individual’s ability to adequately provide for their retirement. As we await the outcomes of these procedures, let’s take a look at the facts and rules around pension funds in South Africa.

Pension funds

Can South Africans withdraw from their pension funds?

As the law stands currently in 2022 South Africans can only withdraw or transfer pension funds on resignation, retirement or if they become unemployed. In respect of retirement annuities, it is only possible to withdraw these savings when you retire or if you become permanently disabled. It is possible to cash in your retirement annuity before 55 if you complete the process of tax emigration to become a tax non-resident, but only after you’ve maintained this non-resident status for at least three years.

This means that you can only cash out your pension fund if you withdraw from the pension fund, and you only gain this withdrawal benefit when you resign or lose your job. Becoming unemployed and retirement have different consequences:

• If you withdraw when you retire (you can only do this after the age of 55) you can only cash out up to one-third of your fund value, and the balance must be used to purchase an annuity which will provide an income for your retirement years.
• If you withdraw when you are retrenched or you resign and move jobs, you can:
  • Transfer as much of your funds as possible to a preservation fund at a registered financial services provider.
  • Transfer your funds to a retirement annuity or your new employer pension fund.
  • Cash out your total amount, but the tax you pay at this point is more than you might pay on the cash lump sum you would be able to access when you retire from the pension fund.

How much tax will you pay when cashing out your pension fund?

The South African Revenue Service will want their cut of your payout. This cut is calculated as follows:

• The first R25 000 is not taxed;
• The balance up to R660 000 is taxed at 18% of the amount over R25 000;
• The balance up to R990 000 is taxed at R114 300 + 27% of the amount over R660 000; and
• The remainder is taxed at R203 400 + 36% of the amount over R990 000.

Resigning from your job to cash out your pension fund early, or cashing out your pension fund on retrenchment might be tempting. Particularly if you’re sitting with debt or you need capital to invest in a new business venture you might be considering. However, this jeopardises your future during your retirement years, as you will lose out on the benefit of compound interest on the savings you have already accumulated. (The longer you leave your money untouched, the harder compound interest works to grow your funds over time.)

Did you know? You might be a beneficiary of unclaimed pension funds in South Africa

If you’re looking for a quick financial fix, this might be it. According to BusinessTech, there are billions of rands in unclaimed pension fund benefits that are owed to approximately 5 million members. This figure was first reported at R42 billion in 2020, but has climbed to R47.3 billion in 2021 as shown in a report issued by the Financial Sector Conduct Authority (FSCA)  in April 2021.

Why is there so much unclaimed pension fund money in South Africa?

The regulator has noted that 80% of the unclaimed funds lie with trade union-affiliated pension funds and most of these members are low-income miners. The biggest reason is awareness – members change jobs and fail to update their personal information with their fund administrator because they lack the financial literacy to understand that it is necessary to do so in order to keep their pension funds active. This means they lose out on contributions they’ve already made. Fund administrators have poor records of their member base, and it is not in their interest to actively track down wayward members as asset managers and fund administrators continue to earn fees from unclaimed assets.

What is being done to rectify this situation of unclaimed pension benefits?

The FSCA is in the process of enabling the repossession of unclaimed benefits and has made significant progress over the last year. To this end the regulator has established an unclaimed benefits search engine that has assisted 14,000 individuals to claim payments worth approximately R1.2 billion. Further to this goal, the National Treasury plans to introduce legislation to consolidate unclaimed benefits and establish a unified registry for the retirement industry.

How to search if you are a beneficiary of unclaimed pension funds in SA

The registrar of pension funds offers a central database on the FSCA website that will help individuals to find out whether there are any unclaimed benefits owed to them. To make an inquiry, you simply need to enter basic information such as  a person’s name, surname, identification number, fund name, and name of employer. If there is a match found with any search criteria, the search engine will issue the contact details of the fund and associated administrator, and from there, the individual will need to contact the fund directly and follow their established claims procedure in order to verify their claim.

FinGlobal: track and trace any unpaid insurance policies/pension benefits

FinGlobal works closely with all South African insurance providers to bring beneficiaries and unclaimed funds together. If you think you might be due any unclaimed funds in South Africa, or you’ve left behind any policies, we can take the hassle out of getting your money. Once we’ve verified that you’re a beneficiary, we can then guide you through moving your money abroad, assisting you with navigating the tax and foreign exchange requirements, every step of the way.

So what are you waiting for? Let’s get you reunited with your unclaimed South African funds. Leave us your contact details and we’ll be in touch to start the process.