What happens if I resign or I am dismissed or retrenched?

Option Advantages Disadvantages
Preservation fund
  • Your retirement savings are preserved for retirement.
  • You can take one cash withdrawal if you ever need emergency funds.
  • Tax-free transfer.
  • You have full control of your retirement savings transferred to the preservation fund, and can switch investment portfolios from time to time.
  • You will reduce your retirement benefit if you use your once-off withdrawal option.
  • You can’t pay any extra contributions into the preservation fund.
Retirement annuity fund
  • You preserve your savings until retirement.
  • Tax-free transfer.
  • You can make contributions to a retirement annuity fund. These contributions may be tax-deductible.
  • You can’t withdraw any money until age 55.
  • You can only take up to one-third of your retirement savings as cash at retirement. The balance must be used to buy a pension from a registered insurer.
New employer’s fund
  • You preserve your retirement savings until retirement.
  • Tax-free transfer (except if you are transferring from a pension fund and into a future employer’s provident fund).
  • There are no costs involved.
  • You may not have control over the future management of your retirement savings
  • You cannot get your money unless you resign, are dismissed or retrenched or retire.
  • You can use the benefit to pay off debt, such as a bond or car.
  • You can reinvest the money in an investment of your choice.
  • Withdrawals taken in cash are taxed according to the withdrawal tax table (with a small tax-free amount of R22 500).
  • You will have less money when you retire.

*This option is not recommended. Speak to a qualified financial adviser before you take cash from your retirement fund. You can also contact the Alexander Forbes Advice Centre on 0860 100 444.

What can be taken from my benefit before I get it?

Section 37D of the Pension Funds Act allows for specific deductions from your benefit when you leave your fund. These may for:

  • A home loan from the fund
  • A divorce order
  • An admission of guilt that you are responsible for a loss suffered by the company.

Section 37D and unclaimed benefits

If you withdraw from a fund and don’t claim your benefit for any reason for a specific time period, it will be seen as an unclaimed benefit. According to the Pension Funds Act this time period is 24 months.

No tax will apply to a benefit that becomes unclaimed and funds are allowed to transfer this unclaimed benefit to an unclaimed benefit fund.

I am entitled to a benefit but I am not too sure whether to take the benefit in cash or to transfer it to another fund?

If you resign or are retrenched or dismissed, the rules of your fund will set out exactly what benefits you are entitled to. This benefit can be either transferred to another fund chosen by you, or taken in cash.

The trustees don’t recommend taking your benefit as cash. This money is meant for your retirement and should be preserved as much as possible. A transfer to another fund is recommended. Also remember that a withdrawal benefit taken in cash is heavily taxed.

You can use the projection tool and tax calculator to determine the long-term effects of your decision. However, you should get professional financial planning advice. Alexander Forbes Financial Planning Consultants (FPC) has a specialised division, the Individual Advice Centre that focuses on giving financial planning advice and service to new and existing clients.

Telephone: 0860 100 444 (Monday to Friday - 8am to 5pm)
Email: iac@aforbes.co.za

How does maternity leave affect my fund?

This depends from employer to employer and fund to fund. In many cases your employer will continue contributing to the fund for the duration of your maternity leave provided you also continue contributing to the fund. If you stop making contributions while on maternity leave, your employer will only continue to pay for your death and disability insurance.

Details on how maternity leave will affect your fund membership are available from your human resources department.

What happens if I get divorced?

If you get divorced, your spouse could get a portion of your benefits in the fund.

In terms of the Divorce Act, part of your retirement fund benefit is recognised as an asset. The value of this asset (which could be divided between you and your spouse) is called the “pension interest”.

The Divorce Act doesn’t state that the pension interest must be divided or how the actual division should be worked out. This is up to the parties involved and is described in your divorce agreement. If your divorce agreement includes the division of the pension interest then you must get a valid court order and submit it to the fund.

Members who are getting divorced should contact their fund concerning their divorce settlement agreements before the settlement agreement is made an order of court. In the long run this will save you time and money.

A divorce order and your retirement planning

Legislation regarding divorce and your pension fund benefit is complicated and different scenarios apply to different situations. Best practice advice is to seek competent legal advice in this matter.

If you have a divorce order that needs to be claimed against an Alexander Forbes administered fund, you will need to contact our team dealing with the divorce orders by emailing divorceorders@aforbes.co.za, faxing 011 263 0901 or phoning the Helpdesk at 011 3243401.

Section 14 transfers

What is a Section 14 transfer?

The term Section 14 transfer is a legal process that moves money from one fund to another.

It is a compulsory transfer that takes place when your benefit in a fund is moved to another fund because:

  • Your company restructures or a division of your company is sold
  • Your fund is being discontinued
  • Your fund is restructured
  • Your fund changes from a pension to a provident fund.

The fund is responsible for all the legal documents. The Financial Services Board (FSB) has put checks and balances in place to make sure that members are not disadvantaged when their money is transferred. The fund must make sure that members are informed about and agree to a compulsory transfer and that the full values of their benefits are transferred. The Section 14 transfer must also be clear about when and how interest, if any, will be added to the benefit.

How long does it take?

The fund must submit the application for the Section 14 transfer within 180 days after the effective date of the transfer to the FSB. The money must be paid to the transferee fund at least 60 days after the FSB approves the transfer. A Section 14 transfer is usually a lengthy legal process because of the paperwork involved. It can take even longer to finalise if the FSB has a query.

How can I find out if a Section 14 transfer has been approved?

You can contact the fund’s administrator through your human resources department or payroll office if you have any queries about a Section 14 transfer.

If your money is transferred out of a fund when you leave a fund due to your resignation, retrenchment or dismissal, a recognition of transfer form must be completed and no Section 14 transfer is required.

Recognition of transfer (ROT)

What is recognition of transfer (ROT)?

Like a Section 14 transfer, a recognition of transfer moves money from one fund to another. However, the ROT is sent to the new fund where the money is being transferred to. The signed ROT is returned to the original fund and then the money is transferred. The money is transferred tax-free to another approved fund which can be either a preservation fund, a retirement annuity or your new employer’s fund.

Although tax will not be taken from your benefit at the date of transfer, your administrator may have to make a deduction allowed by Section 37D of the Pension Funds Act for:

  • A housing loan
  • A divorce order
  • An admission of your liability for a loss suffered by your employer, for an event such as fraud or theft.

When must a recognition of transfer be completed?

A recognition of transfer must be completed when a member leaves a retirement fund because their employment has ended because of dismissal or retrenchment or when they resigned.

Who completes the ROT?

The administrator of your current retirement fund completes the documents for you. You need a tax number to complete the process. This is another reason to have your tax affairs in order. If the money remains unpaid in your previous fund, it could become an unclaimed benefit.

What is an unclaimed benefit?

If a benefit from a fund is not claimed, it will be regarded as an unclaimed benefit.

Usually benefits become unclaimed:

  • When the administrator does not have your banking details or your tax number for an exit or retirement benefit.
  • If a fund has sent you a statement confirming that a benefit is payable to you and you don’t come forward.
  • When the administrator can’t find your dependants or nominated beneficiaries in the case of a death benefit.
  • Your tax affairs are not in order.
  • The administrator doesn’t have your contact details.

Usually the rules of your fund will say that if the benefit is not paid to you within a certain time period then the benefit becomes unclaimed, this is usually 24 months.