Question:
I am over 55 and have a linked annuity plan and a pension preservation plan. Questions: 1)Can withdrawals of up to one third be made from both albeit taxed in excess of R22 500; 2)At retirement, is one obligated to buy a living annuity? Does this have to be an insured annuity, or can one decide on the underlying investments so that in the event of death, the remainder can go to the next of kin rather than the life assurer providing the annuity; 3)Can one decide (in ones will) who gets a share of the annuity/proceeds of a pension preservation fund or linked annuity plan after death or is this prescribed by law?
Answer:
To answer your questions in order:
1. You can convert up to one-third of your retirement annuity (linked annuity) into a cash lump sum. Until you reach normal retirement age you can convert 100% of your pension preservation fund into a cash lump sum (unless you have already made your one withdrawal from the fund). This will be taxed per the withdrawal lump sum tax table. (Note that you are allowed one withdrawal for each transfer to your preservation fund).
Once you reach normal retirement age (per the fund rules), you can only convert one-third of your pension preservation fund into a cash lump us. You will then be taxed per the retirement lump sum tax table, which means the first R315 000 is received tax-free. The R22 500 tax-free amount relates to withdrawals (if you withdraw before retirement). You can generally only retire (not withdraw) from your retirement annuity - the withdrawal lump sum tax table does not apply to retirement annuities unless you formally emigrate or you retire early due to ill-health. The lump sum tax tables apply in aggregate to all your cash lump sums (ie you don't get the same tax breaks twice).
2. You can choose to buy either a living or a guaranteed annuity. The living annuity allows you to choose your own investments, and any remaining capital goes to your beneficiaries. But you assume the investment and longevity risk. With a guaranteed annuity, your capital dies with you, but you do not carry the investment and longevity risk.
3. While the money is in your retirement annuity or pension preservation fund, the Fund trustees decide who gets the money. They have to make sure all your financial dependents are looked after. If you have no financial dependents, the Trustees will follow your nominated beneficiaries, provided you have filled in a Nominations form. If you have not done so, the money will fall into your estate, and be allocated according to your will. Once your money is in a living annuity, any remaining capital will go your nominated beneficiaries.
In a guaranteed annuity, no capital remains, but you can buy an annuity that includes a spousal benefit (ie it will keep paying out a portion - say 60% - to your spouse). Such an annuity will obviously pay out less than an annuity without a spousal benefit.
