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Eskom has changed pension fund payout rules for deferred members

By December 5, 2022FinGlobal

Eskom has changed pension fund payout rules for deferred members

December 5, 2022

Eskom-rule-changes

If you’re a member of the Eskom Pension and Provident Fund (EPPF), there have been some updates to the rules governing payouts. Whether you’re a deferred member, or an in-service member, it’s worth making sure you’re up to date on the Eskom Pension Fund rules so you know how they affect you and your retirement plans.

The Eskom Pension and Provident Fund rules

In a communication dated 13 September 2022, the EPPF notified members of important changes. Previously, members of the power utility’s pension fund were only allowed to access their full withdrawal benefit before the age of 55 but this age limit has now been increased to 65.

Known as “Rule Amendment 1”, these changes have been noted and registered by the Financial Sector Conduct Authority (FSCA) which means the updates will now be applied going forward, in respect of the consolidated rules that apply to the Eskom Pension and Provident Fund.

What does Rule Amendment 1 mean for Eskom Pension and Provident Fund members?

There are two types of members, and both are affected by these changes –

  1. Deferred members: also known as “deferred pensioners”, these are individuals who have chosen to leave their money in the Eskom Pension and Provident Fund when their employment ended at Eskom SOC Holdings (Eskom), Eskom Rotek Industries (ERI) or the EPPF.  Their money was left in the Fund knowing that it would become available to them when they turned 65, or if they took early retirement at the age of 55.
  2. In-service members: Individuals currently permanently employed by Eskom, ERI or the EPPF.

How are deferred members of the Eskom Pension and Provident Fund affected by the Rule Amendment 1?

With this amendment, deferred members are now able to activate their withdrawal benefit from the Fund until the age of 65. Before this amendment, deferred members could only receive their withdrawal benefit from the Fund before they had turned 55. Once they’d reached this age, they would then have to wait and could only access their funds by retiring and exercising the retirement benefit.

What must deferred members know about this rule change and their money in the Eskom Pension and Provident Fund?

  • The date of becoming a deferred member (the date you left service) does not affect whether you may receive a withdrawal benefit.
  • As a deferred member, you will no longer be able to take a withdrawal benefit once you reach 65.
  • This means you can still take a withdrawal benefit at the age of 64 but once you have turned 65, you can no longer take the withdrawal benefit, as you can only receive a retirement benefit from this age.
  • After 65, you can take up to one-third of the retirement benefit as a lump sum cash payout and the remaining two-third portion must be used to provide a regular pension income.

One important thing to note for deferred members:

If you resigned at age 55 or older (before Rule Amendment 1 came into effect on 28 July 2022, you will still need to prove that you have alternative employment if you wish to use your withdrawal benefit. The rules as they stood on the date of leaving service will apply to you and you will need to show proof of alternative employment if you want to receive your withdrawal benefit as a lump sum cash payout.

How are in-service members of the Eskom Pension and Provident Fund  affected by Rule Amendment 1?

In-service members who are 55 or older are now able to utilise their withdrawal benefit from the Fund when they leave employment, and it is no longer necessary to prove that they have alternative employment before they can do so.

Before the changes brought by Rule Amendment 1, in-service members whose employment was terminated (either by resignation or dismissal) were not allowed to take a withdrawal benefit as a cash lump sum before verifying they were otherwise employed. Now, Rule Amendment 1 has done away with the requirement of alternative employment, where the member is 55 or older. Here, any member may exercise their ability to receive a withdrawal benefit as a cash lump sum payout should they wish.

In-service members whose employment changes from being permanent employees to being on a fixed-term contract. In terms of updates to the EPPF rules, where an in-service member’s employment is switched from permanent to contractual, this individual will become a non-contributing member. This is because the individual will no longer meet the Fund’s membership requirement in respect of permanent employment, and will no longer be permitted to continue as a member. Here, no additional contributions can be made into the Fund after the date on which employment status changed, and that individual’s benefit will be held in the Fund until their employment has been terminated entirely. As long as this individual is employed on a fixed term basis, they will not be able to take their withdrawal benefit or transfer the benefit to another Fund.

What must in-service note about this rule change and their money in the Eskom Pension and Provident Fund?

  • You cannot transfer your withdrawal benefit to another retirement fund if you move from permanent employment to a fixed-term contract.
  • Your benefit will remain in the Fund until you leave the service of the employer entirely. Once this happens, you can take your withdrawal benefit as a lump sum cash payout or transfer it to another retirement fund, where you have not yet reached the age of 65.
  • Even though you cannot use your withdrawal benefit once you’ve been switched to a fixed-term contract from permanent employment, your money does still continue to earn interest. Your benefit remains invested and will still earn an investment return.

FinGlobal: cross-border financial specialists for South African expats

If these rule changes have made you realise that you are now eligible to access your Eskom Pension and Provident Fund withdrawal benefit, FinGlobal can be of assistance. We’ve assisted thousands of South African expats abroad to encash their retirement savings and transfer the proceeds abroad. We can handle all of the paperwork, tax compliance and exchange control requirements on your behalf.

Leave us your contact details and we’ll be in touch to start the process for you.

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