Question:
I contributed towards a Provident Fund at my previous employer, and was subsequently taken over by a new company (S197) The new company policy is that everyone contributes toward a Retirement Annuity. However, I do not want my Provident Fund Lump Sum to be locked up in this new retirement annuity. I need to know which options are available to me in terms of the Provident Fund Portion. I've been told about S14A which states that my current Provident portion has to be transferred to the new retirement annuity because of the S197 transfer. Please advise me on this?
Answer:
Trudie, Even if the retirement annuity is company policy, it is still a retirement product taken out by the individual, and the contract is between you and the retirement annuity provider. If the retirement annuity contribution is a company benefit (i.e. the employer effectively pays for the benefit) and is part of the terms of employment then you will have to join the retirement annuity. But if the contribution is not a company benefit, but simply an imposition - a deduction from your salary - then you cannot be compelled to take out the retirement annuity. Nor can they force you to transfer your provident fund to the retirement annuity.
Either your current fund rules will specify that the benefit must be transferred to a similar fund or else be paid out to you, or they will be silent on the matter. If they are silent on the matter, then you either have the option to withdraw, or the business sale agreement will state what affected employees must do. As this is a s197 agreement, you cannot be put into a worse position than before.
Your provident is a more flexible product than an retirement annuity. It allows you to withdraw on resignation and you can take the whole amount as cash when your retire. With the retirement annuity you can only access the money from age 55 and you must use two-thirds to buy an annuity. Plus you may incur penalties if you make your retirement annuity paid-up, or lower your contribution. So a transfer to an retirement annuity would NOT protect your existing rights - which is the purpose of the s197 agreement - and cannot therefore be enforced, either by any fund rules or by management. Complain to the Pension Funds Adjudicator if your management wants to coerce you into such a transfer.
Your wisest option is to transfer your provident fund to a provident preservation fund. The transfer is tax-free and you are allowed one - full or partial - withdrawal from this fund before retirement (earliest age 55).
