Question:
Upon retirement, can a pension fund be transferred to a preservation fund? If not, why? If so, please advise where "authorised" in the tax act.
Answer:
Les,
No, it cannot, because the Income Tax Act does not allow this. Paragraph (a) of the definition of pension preservation fund in the Income Tax Act No. 58 of 1962 provides that membership of the fund consists of former members of a pension fund whose membership of that fund has terminated due to:
- resignation, retrenchment or dismissal from employment and who elected to have any lump sum benefit that is payable as a result of the termination transferred to that fund;
- the winding up of that fund, if the member elects or is required in terms of the rules to transfer to this fund; a
- a transfer of business from one employer to another in terms of section 197 of the Labour Relations Act.
The definition does not include transfers from a pension fund from members retiring from that fund. It is mandatory that on leaving a pension fund after reaching normal retirement age (per the fund rules) that the member must retire rather than withdraws from the fund.
