Question:
I have a matured Protektor Preservation Fund. I am 62 and still working and wish to retire at 65. I need about R500 000 for a deposit to purchase my retirement apartment. How can I best utilize this resource without a serious tax burden? Can I take out the lump sum of R500000 tax free and transfer the balance into another pension fund that I have? Rgds. Mervin
Answer:
Mervin, As you may be aware, you are allowed one withdrawal from your preservation fund before retirement. So you could draw R500 000 (if you have not made a previous withdrawal) and leave the remainder in the fund. You would pay tax of R85 500 on the withdrawal and also forfeit the R500 000 tax free portion you would have enjoyed at retirement. This is probably not what you want. At age 62 you can also choose to retire from the preservation fund. If this is a provident preservation fund, you would then get R500 000 tax free (assuming no prior retirement fund withdrawals) but you would then also have to cash in the remainder of preservation fund.
You could either take the balance as cash and pay lump sum tax, or transfer the balance tax-free to an annuity (living or guaranteed) and only pay tax on the income you draw. But you cannot preserve the balance (eg by transferring tax-free to an retirement annuity or another pension or preservation fund). You can transfer the after-tax proceeds to a retirement annuity however. If this is a pension preservation fund, then on retiring from the fund you could only access up to one third as cash, and you would have to use at least two-thirds to buy an annuity. So you will not be able to do what you suggest. It will depend on your financial circumstances and your priorities as to whether you incur the higher tax (on a partial withdrawal) or pay no tax on the first R500 000 (but accept that you then have to pay tax or annuitise the remainder).
