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Preservation Fund

preservation fund faq’s

Preservation Fund FAQ's

Preservation Fund

What is a preservation fund?   Who should consider using a preservation fund? What are the tax benefits of a preservation fund? How many preservation funds can you join? When can you access your preservation fund? How are your preservation fund benefits taxed?   Can you contribute to a preservation fund? Will you pay penalties when transferring your preservation fund? Can you transfer your preservation fund? What happens in event of the member’s death? Can you cede your preservation fund? How do you join a Preservation Fund? What product providers does RA Direct represent?   

What is a preservation fund?

This is a retirement fund designed specifically to invest the proceeds of your pension or provident fund. You may transfer your proceeds to such a fund in the event you are dismissed, retrenched, or you resign. This preserves both your retirement investment and the tax benefits. The transfer is not taxed provided you move your savings from a pension fund to pension preservation, or from a provident fund to provident preservation. From 1 March 2016 (or possibly 1 March 2017), all retirement fund transfers will be tax free. You cannot, however, make contributions to your preservation fund. Your investment will thus only grow in line with its investment return.

Who should consider using a preservation fund?

You should consider a preservation fund when withdrawing from a pension or provident fund (due to resignation or retrenchment).

What are the tax benefits of a preservation fund?

A preservation fund preserves your investment and the tax benefits of a pension or provident fund. Investment returns are tax free – there is no income tax or capital gains tax When benefits are paid it will be taxed on a favourable basis. The lump sum benefits are taxed on a sliding scale with a portion of the benefit tax free (see the withdrawal calculator & retirement calculator). You do not pay tax when you transfer to a preservation fund, provided you transfer from a provident fund to a provident preservation fund, or from a pension fund to a pension preservation fund.

How many preservation funds can you join?

You can join multiple preservation funds (you may join a new fund every time you exit a pension or provident fund), but the tax benefit is determined in aggregate, not in respect of each individual fund. The tax-free lump sum portion may be claimed only once.

When can you access your preservation fund?

You can make one partial (or full) cash withdrawal at any time before you retire. On retirement from a pension or provident preservation fund, you may take a maximum of 1/3rd of your lump sum as cash; with the balance you must purchase either a living or a conventional annuity, which will pay you a regular income. This general rule is subject to the vested right on your provident or provident preservation fund. Your ‘vested right’: On retirement from a provident preservation fund you may take your ‘vested right’ as a cash lump sum. The ‘vested right’ is the balance on your provident or provident preservation fund at 1 March 2016 (or possibly 1 March 2017), and the subsequent return thereon. If you retire from the provident preservation fund before this ‘vesting’ date, you may claim the full amount as a cash lump sum.

How are your preservation fund benefits taxed?

Tax Rate Withdrawal Lump Sum Retirement Lump sum 0% 0 – R25,000 0 – R500,000 18% R25,001 – R660,000 R500,001 – R700,000 27% R660,001 – R990,000 R700,001 – R1,050,000 36% R990,001+ R1,050,001+ See ‘Withdrawal Calculator See ‘Retirement Calculator Annuity payments are taxed as income, according to the personal income tax tables.

Can you contribute to a preservation fund?

No. You can only transfer your proceeds from a pension, provident or preservation fund to a preservation fund. Will you pay penalties when transferring your preservation fund? We are not aware of companies that levy penalties when transferring a Preservation Fund. Can you transfer your preservation fund? Yes, you can transfer your preservation fund tax free: Between pension preservation funds Between provident preservation funds From a pension preservation fund to a pension fund From a provident preservation fund to a provident or pension fund To an RA You presently pay tax if you transfer your pension preservation fund to a provident fund. From 1 March 2016 (or possibly 1 March 2017), all retirement fund transfers will be tax free. What happens in event of the member’s death? In line with section 37 of the Pension Funds Act, the trustees of the fund will distribute the proceeds, considering first the needs of your dependents and then the beneficiaries listed in your nomination form. It is thus important to update your nomination form annually. Can you cede your preservation fund? No.

How do you join a Preservation Fund?

If you are withdraw from your current retirement fund due to being dismissed, retrenched, or resignation you can request a quote on this website to receive a quality big brand product provider quote with discounted fees to ensure you preserve more of your money compared to 100% advisory fees being charged. When you are satisfied with the quotation, you must complete the withdrawal form indicating that you wish to transfer to the preservation fund as per quote accepted by you and forward the withdrawal form to your companies HR department. RA Direct will prepare your application form and send it to you for approval with your signature. After returning the signed application form and a copy of your withdrawal fund, we will do the necessary transactions and process your request. Contact a RA Direct broker if you need more information.       

What product providers does RA Direct represent?

The Brokers represented on this website offers products from only big brand, high-quality, reputable product providers with a proven track record. You will find quality solutions from major role players. On these companies platforms you can make choices from more than 900 funds available from fund anagers,including Absa, Allan Gray, Coronation, Element, Foord, Investec, Nedgroup, Oasis, Old Mutual, Prudential, ect. to enable you to compile a truly diversified investment / portfolio.                                                              
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