Retire or not...

Candi Bracken wanted some clarity about the content of a newsletter distributed a short while ago, concerning preservation funds, tax and retirement and SARS. Part one is a newsletter.

The exception to this general rule is membership of a retirement annuity fund.

“That is, while a member has to retire simultaneously from allpension, provident and preservation funds of which he is a member at the date of retiring from employment with his last employer, he need not retire from a retirement annuity fund until age 70.

“However, the retirement age under the RA might coincide with the retirement age under the pension, provident and preservation fund, but that is merely co-incidental.”

“If a member withdraws (as opposed to retire) from a pension or provident fundwith a new employer due to resignation,retrenchment, dismissal or the liquidation of the fund, he does not have to withdraw from his existing preservation fund(s).

Go preservation

“Assuming that he has not yet reached normal retirement age under the new pension or provident fundand subject to the rules of the fund, hemay transfer the withdrawal benefit to a new preservation fund.

“Provided his most recentemployer is registered as a participating employer, as opposed to taking the amount in cash,” explains Primo.

However, where the member agrees with his employer to retire from employment at normal retirement age (or earlier), in terms of the rules of his most recent pension or provident fund, he must simultaneously retire from any preservation fundof which he is a member and become entitled to a retirement benefit also from that fund.

“This in spite of the fact that he might subsequently be re-employed by the same employer.

“This principledoes not apply only to circumstances where anemployeeretires with no further employment.

“As indicated to "retire" means to retire from employment (as opposed to the fund) andmy interpretation of the phraseis that one needs to sever ties completely with the employer.

“To say that someone retires, e.g.at age 65 in your example, butremains in the employ of theemployer in the same capacity is, in myopinion, a contradiction in terms and could be considered a contravention of the principle outlined above.

Check the rules

“Nevertheless, the rules of many funds allow an employee to defer his retirement age to no later than 70, but in that case thepersonmust remainemployed until age 70 (or earlier if agreed with the employer) and will then actually retire from employment at that age.”

In some cases there may be an obligation in terms of the rules of the fund for contributions and risk premiums to be paid by, or on behalf of, the employee for the extended period.

“Having said that, there is nothing precluding an employee who has in fact retired from employment tocontinueto provide his or her knowledge or skills to the formeror a newemployer in a different capacity,e.g. as an independent contractor.

“However, SARS will accept that the personhas indeedretired for purposes of the Second Schedule, providedhe or she no longer qualifies for membership of the employer's pension and/or provident fund.”