A preservation fund is a retirement fund which preserves the value of a pension or provident fund when an employee has resigned or been retrenched from his employment.
Withdrawal before retirement
An investor may make one full or partial withdrawal from his preservation fund before retirement. This withdrawal is taxed as a retirement withdrawal benefit on the below sliding scale which takes all the taxpayer’s withdrawal benefits over his life into account.
| Taxable income (R) | Rate of tax (R) |
|---|---|
| 1 – 25 000 | 0% |
| 25 001 – 660 000 | 18% of taxable income above 25 000 |
| 660 001 – 990 000 | 114 300 + 27% of taxable income above 660 000 |
| 990 001 and above | 203 400 + 36% of taxable income above 990 000 |
Withdrawal at retirement
If an investor withdraws when he has reached retirement age (usually 55) he will be taxed per the sliding scale of the retirement lump sum benefit below. As mentioned above, the taxable amount will consider all withdrawals in the investor’s life.
| Taxable income (R) | Rate of tax (R) |
|---|---|
| 1 – 500 000 | 0% of taxable income |
| 500 001 – 700 000 | 18% of taxable income above 500 000 |
| 700 001 – 1 050 000 | 36 000 + 27% of taxable income above 700 000 |
| 1 050 001 and above | 130 500 + 36% of taxable income above 1 050 000 |
The amount an investor can withdraw depends on the type of preservation fund in which he is invested. There are both pension and provident preservation funds.
If the investor is invested in a pension preservation fund, the investor may withdraw up to 1/3 of the investment. The remaining portion of the investment must be transferred into a living annuity.
If the investor is invested in a provident preservation fund, the investor may withdraw up to 100% of the investment value that was invested prior to March 2021 as well as growth on that portion of the investment. This is referred to as the investor’s “vested benefit”. The investor may withdraw up to 1/3 of the portion of the investment invested after March 2021 as well as any growth. This is referred to as the investor’s “unvested benefits”. The remaining 2/3 must be transferred to a living annuity.
