Question:
Good day, I am hoping you can advise me. I have been employed for 16 years at the same school (I do admin and aftercare). I am turning 65 in May and as per school policy I have to leave at the end of this year. I have contributed to a pension fund, but am not ready to retire and intend looking for another job. I will need to put about R330 000 into a vehicle for safe keeping. I plan to draw UIF when I leave, until such time as I find employment. Firstly, am I able to draw UIF at 65 years of age? I really do need to work, as I am a widow, and anyhow I do not have much to put into my pension to sustain me, which is why I am thinking of putting it away until I need to draw upon it. I will be keeping about R150 000, which is the one-third portion that I can withdraw tax-free, leaving me with R330 000. Please could you give me some advice, and on an amount of R330 000, what could I expect to receive a month? Thanking you, Rose.
Answer:
Roselyn,
Your options are somewhat limited. Once you reach normal retirement age per the fund rules, you have to retire from the fund when you leave your employer. On retirement, you can take up to one-third as cash, you MUST use at lest two-thirds to buy an annuity, either a conventional or a living annuity (you cannot put it away in a bank,or defer taking it).
In living annuity, you must draw down between 2.5% and 17.5% of your residual capital on policy anniversary date every year (that's between R8 250 and R57 750 per year on R330 000). The more you draw down the faster you will deplete your capital and you risk outliving your savings.
To secure an income for life, you would have to buy a guaranteed annuity. However, a fully-inflation linked annuity for a 65 year-old unmarried woman only pays out around R1 800 per month at present, or R3 150 per month for an annuity that does not grow with inflation.
If you want to defer taking your pension, you would have to resign before your reached your fund's normal retirement age, and transfer the fund to a pension preservation fund, where you can leave it for as long as you wish. You can also transfer only a part, and take the rest as cash, but this cash lump sum will then be taxed at higher rate. On withdrawal, only the first R25 000 is not taxed, the balance is taxed at 18% (up to R660 000); on retirement, the first R500 000 is paid out tax fee. So you would have to trade your immediate cash lump sum benefit against preserving your savings for longer.
If you were to follow the second option (resign early), you could not claim UIF as you would have left voluntarily. You are also unlikely to get UIF if your retire, unless you can convince them of your intention to return to the labour market.
