Pension Fund Withdrawal

[tsume]

A friend changed jobs after working for a short time with his last company. His pension fund is around R12000. Would a withdrawal of this result in a loss of the one tax free pension withdrawal, even though it's below the tax margin for withdrawal before retirement?

I tried searching online but can't find any clear information regarding this kind of situation.

 

[Splinter]

A friend changed jobs after working for a short time with his last company. His pension fund is around R12000. Would a withdrawal of this result in a loss of the one tax free pension withdrawal, even though it's below the tax margin for withdrawal before retirement?

I tried searching online but can't find any clear information regarding this kind of situation.

You are confusing things with preservation funds (with respect to the one withdrawal). Having said that, R12000 is really small and I doubt it would attract any tax. Your friend should not spend it; rather preserve it.

 

[tsume]

Yep R12000 doesn't attract tax. Only monies above R22000 from what I've read up.
If pension fund are immune from the one time withdrawal, as you pointed out, then its a safe bet for him to withdraw the cash?

 

[theratman]

Should have no problem withdrawing as its below the threshold. It will takes ages to be processed though.

 

[PsYTraNc3]

I have a similar question.

I will be looking into purchasing my first property by the end of the year and worried that I will not have enough for a decent deposit if I do not get a 100% bond.

I should have over R100k in my pension fund though.
Would it be a good idea for me to make a withdrawal?

 

[supersunbird]

A friend changed jobs after working for a short time with his last company. His pension fund is around R12000. Would a withdrawal of this result in a loss of the one tax free pension withdrawal, even though it's below the tax margin for withdrawal before retirement?

I tried searching online but can't find any clear information regarding this kind of situation.

If I am correct: first R25,000 is not taxed. So no tax on his withdrawal. It won't affect his tax free lumps um accessible on retirement.

 

[akescpt]

I have a similar question.

I will be looking into purchasing my first property by the end of the year and worried that I will not have enough for a decent deposit if I do not get a 100% bond.

I should have over R100k in my pension fund though.
Would it be a good idea for me to make a withdrawal?

I don't think it works like a savings account.

 

[supersunbird]

I have a similar question.

I will be looking into purchasing my first property by the end of the year and worried that I will not have enough for a decent deposit if I do not get a 100% bond.

I should have over R100k in my pension fund though.
Would it be a good idea for me to make a withdrawal?

So will you be quitting your job to access the pension fund? Most have rules that you can't access it unless you leave the employment of the employer.

And not a wise move in any case.

 

[PsYTraNc3]

So will you be quitting your job to access the pension fund? Most have rules that you can't access it unless you leave the employment of the employer.

And not a wise move in any case.

I was told when starting the fund that I would be eligible for one withdrawal.

I've still got a looooong way to go before I retire so thought it wouldn't hurt much
If it's not a good idea though, I guess it's time to start saving a bit more.

 

[the eskimo]

I have a similar question.

I will be looking into purchasing my first property by the end of the year and worried that I will not have enough for a decent deposit if I do not get a 100% bond.

I should have over R100k in my pension fund though.
Would it be a good idea for me to make a withdrawal?

Some companies offer Pension Backed Lending (PBL) through a bank (usually Standard Bank). You would be able to borrow money from the bank using your pension/provident fund as security for the loan at a "Prime minus" interest rate. There are some rules as to what this could be used for, but a deposit for a home loan is one of the allowable reasons for this. You would not be able to access 100% of the value, usually about 60% (should you default on the loan this allows for tax and some market movement). It would be worth asking if your company has this.

 

[PsYTraNc3]

Some companies offer Pension Backed Lending (PBL) through a bank (usually Standard Bank). You would be able to borrow money from the bank using your pension/provident fund as security for the loan at a "Prime minus" interest rate. There are some rules as to what this could be used for, but a deposit for a home loan is one of the allowable reasons for this. You would not be able to access 100% of the value, usually about 60% (should you default on the loan this allows for tax and some market movement). It would be worth asking if your company has this.

Sorry but I saw the words "Loan" and "Interest" which is big red flags for me
I'd much rather cut down on spending and save more for a deposit.

The interest I'll be paying on a home loan is enough for me.

Thanks though

 

[vash87]

I was told when starting the fund that I would be eligible for one withdrawal.

I've still got a looooong way to go before I retire so thought it wouldn't hurt much
If it's not a good idea though, I guess it's time to start saving a bit more.

If you've got a long way to go before retirement don't underestimate how much you'll actually need at retirement, taking inflation into account. And also don't underestimate the value of having R100k earning interest on top of your monthly contributions, vs starting from scratch again.

If you give me numbers, like what you want in todays rand value when you retire, and how long until retirement, I'll do some illustrative calculations for you.

 

[Paul_S]

And also don't underestimate the value of having R100k earning interest on top of your monthly contributions, vs starting from scratch again.

Agreed, but on the other hand don't underestimate the damage Zuma, the Hawks, the Gupta's and the ANC will do to your investment fund over the next few years.
The JSE ASI has only grown by 0.69% over the past year. i.e. Your pension is unlikely to be growing at all in the current economic situation and inflation has most likely been devaluing your retirement fund over the past year.

I'm cashing out my pension fund (retrenchment = first R500K tax free) and paying off most of my bond.
If interest rates go through the roof and the economy tanks even further I'll at least have a roof over my head but if I can no longer afford to pay the bond then I'll be homeless. Paying off my bond gives me a guaranteed return of nearly 11% whereas my pension fund has only grown by around 5% over the past year.
Then the R8000 that is freed up due to lower bond payments, I will invest in an RA. The new 27.5% limit is also great news because it means that I effectively claim back R2500 in tax deductions.

The advice of "don't cash your pension out" is a hard and fast rule that applied over the past 20 to 30 years. We are now entering an age of uncertainty where the old advice may no longer be the best advice for an individual's situation.
Each person needs to evaluate their own situation and act accordingly.

 

[SauRoNZA]

I was told when starting the fund that I would be eligible for one withdrawal.

I've still got a looooong way to go before I retire so thought it wouldn't hurt much
If it's not a good idea though, I guess it's time to start saving a bit more.

It's a very bad idea.

You want to be in there as early as possible and never touch it.

If you are 25 now...

100k becomes R1,744,940 @ 10% annually by age 55.

That's for doing nothing and without adding to it.

A house isn't going to make you that kind of money.

 

[PsYTraNc3]

It's a very bad idea.

You want to be in there as early as possible and never touch it.

If you are 25 now...

100k becomes R1,744,940 @ 10% annually by age 55.

That's for doing nothing and without adding to it.

A house isn't going to make you that kind of money.

1 year off but yeah, I get it.
Definitely will not be touching that cash then!

 

[SauRoNZA]

I'm cashing out my pension fund (retrenchment = first R500K tax free) and paying off most of my bond.
If interest rates go through the roof and the economy tanks even further I'll at least have a roof over my head but if I can no longer afford to pay the bond then I'll be homeless. Paying off my bond gives me a guaranteed return of nearly 11% whereas my pension fund has only grown by around 5% over the past year.
Then the R8000 that is freed up due to lower bond payments, I will invest in an RA. The new 27.5% limit is also great news because it means that I effectively claim back R2500 in tax deductions.

Although your logic about being homeless is sound and sensible, taking a look at the part year's "only 5%" is very narrow view.

You should be looking at the last 7 years at least.

Not to mention that you stand more to gain from buying INTO the market while it's low, instead of realising your losses and bailing out.


The biggest mistake most people make is SELLING while it's low, while they should be buying more instead. Which is exactly what these funds would be doing internally.

 

[Paul_S]

The biggest mistake most people make is SELLING while it's low, while they should be buying more instead. Which is exactly what these funds would be doing internally.

I agree. I could lose out big time if the market rebounds within the next two to three years but I doubt that is very likely with the current government in power.
My biggest risk at the moment is not finding work within a reasonable time frame or interest rates increase too much (like the late 1990's) and thereby losing my house in the process.

 

[SauRoNZA]

Yeah it is a big catch 22 and very circumstantial.

You guys closer to retirement have way more serious decisions to make.

 

[KenTucky]

It's a very bad idea.

You want to be in there as early as possible and never touch it.

If you are 25 now...

100k becomes R1,744,940 @ 10% annually by age 55.

That's for doing nothing and without adding to it.

A house isn't going to make you that kind of money.

Hi all sorry to bring this up again. I am currently in the same situation as i am now changing jobs and need to make a decision as to what do i do with my pension.

One option was to open a RA and transfer it there.

The 2nd was to use it to pay of my bond(part of the bond)

3rd was to withdraw the cash and invest it in a high risk unit trust. Preferably high equities.

I was just wondering whats your opinion on option 3. This funds will be saved for a period of over 30 years. Will ot not grow in proportion to the RA?. I know there are different tax implementations when withdrawing this funds after 30 years however the difference is that you will be able to see and utilize both the capital and interest portion of the money whereas with pension or the RA you will not see or have access to all your hard earned money?

Your thoughts??

 

[saturnz]

Parking bay