Question:
At the end of 2008 I got retrenched and transferred my monies into a pension preservation fund. In March 2009 I withdrew 1/3. In August 2009 I went for spinal surgery and on the operating table became paralysed. 2/3 is still in the pension preservation fund, but am I able to withdraw this monies as a lump sum? I am a quadriplegic and unable to work and need constant care. I have the cost of caregivers and medical expenses. The fund holder advised that I cannot withdraw these monies, but that I should purchase a retirement annuity and withdraw the maximum p/month which is about R1 400 and does not cover my expenses. So am I able to withdraw my funds as a lump sum, taking into account that I am permanently disabled? Hope you can help.
Answer:
Nazla,
Usually, you can access money from a Pension Preservation Fund before retirement if you are permanently disabled. However, it depends on the specific rules of the fund which you can request from your current administrator. If the fund allows "early retirement" based on permanent disability, then you will be able to take up to a third as a cash lump sum (subject to applicable tax rates); with the remaining two thirds you must purchase an annuity income. Depending on the annuity bought, you can maximise the monthly income. A level/fixed annuity will initially pay more than an escalating/variable annuity, but the purchasing power of the monthly payment will decline over time, as it will not grow with inflation.
In exceptional circumstances, you may qualify for an enhanced annuity if you can demonstrate that your life expectancy is below average due to your ill-health. This pays a larger monthly amount.
You will not be able to access the full amount of a pension preservation fund as a lump sum, only one-third. A Pension Preservation fund also allows one partial or full cash withdrawal before retirement – but it appears you have already made use of this.
