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PFA: No early withdrawals on retirement annuities

15 April 2011 Pension Funds Adjudicator
Acting Pension Funds Adjudicator (PFA) Dr Elmarie de la Rey

Acting Pension Funds Adjudicator (PFA) Dr Elmarie de la Rey

Cash withdrawals from your pension fund or retirement annuity are prohibited before you reach the age of 55, and those who do take a withdrawal when transferring from one fund to another will not be allowed to invest in a preservation fund.

It is also important to read your policy documents and statements to ensure your investments meet your requirements.

These were the lessons of a recent ruling by the Acting Pension Funds Adjudicator (PFA) Dr Elmarie de la Rey against a man who approached the PFA in February 2010 to assist him in getting a premature cash payment of his fund value.

The complainant, 34-year old Clinton Walsh of Johannesburg, became a member of the Momentum Retirement Annuity Fund (first respondent) in August 2008 after leaving employment with Strategic Logistical Alliances (Pty) Ltd in May 2008. At the time he opted to transfer his withdrawal benefit from Optimum Pension Fund to a preservation fund administered by Momentum Group, but he failed to indicate his choice on the application form.

A policy was issued to him whom he did not read. It was only a year later when he contacted Momentum Group to withdraw funds from the preservation fund that he learned he was actually a member of a retirement annuity and could not withdraw his funds from the first respondent.

In its response Momentum said the complainant had made no indication on his application form of the type of product he wanted to invest in, although on the Recognition of Transfer Form received, it indicated that the benefit should be invested in a pension preservation fund.

The amount to be transferred and the amount received by Momentum also differed and it was established that this was due to his cash withdrawal before transferring.

Momentum said numerous queries were sent to the complainant’s financial advisor. An application form dated 19 May 2009 was eventually received indicating that the benefit should be invested in a retirement annuity fund. This was supported by a Recognition of Transfer form dated 28 September 2009. This was not queried by the financial advisor.

A contract was sent to the complainant and he also received quarterly statements indicating that his benefit was invested in a retirement annuity fund and that he could only take in cash a maximum of one-third of his benefit on retirement.

When in August 2009 the fund received a withdrawal instruction from the complainant’s financial advisor, it advised him that no withdrawal could be made until the complainant reached the age of 55.

Furthermore, Retirement Fund Practice Note 1/98 issued by the South African Revenue Services provides that a member cannot transfer to a preservation fund when a withdrawal had been taken before the transfer. Even if he had transferred to a preservation fund, the preservation fund would not have permitted a further cash withdrawal before he reached his retirement age because he had already made one when he transferred.

Said Dr De la Rey: “The fund’s rules, which are paramount and binding on all concerned when determining what benefit members are entitled to receive, prohibit withdrawal prior to the retirement date and also state a member’s membership will only terminate in the event of certain circumstances, none of which are present in this case.”

These circumstances include the death, retirement or ill-health retirement of the member; the winding up of the first respondent; the payment of a benefit in commutation of the full annuity amount; the transfer of a member to another approved retirement annuity fund; the emigration of a member if recognised by the South African Reserve Bank; and/or a fund value less than the R7 000 limit set by the Minister of Finance in terms of government notice 467, published in Government Gazette number 29913 of 1 June 2007.

Dr De la Rey dismissed the complaint and the complainant was unable to proceed with withdrawal of his funds.

 

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