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Coronavirus: What you need to know about accessing your investments

If you do need to access your funds, be sure that you fully understand the tax and future consequences of doing so.

Many South Africans are concerned about their cash flow, especially if lockdown is extended beyond Thursday, April 16. If you do need to access your funds, be sure that you fully understand the tax, capital gains tax and future consequences of doing so, bearing in mind that certain compulsory investments cannot be accessed at all.

Here are the details:

FUNDS THAT CAN BE ACCESSED

Discretionary unit trusts

If you have a discretionary unit trust portfolio, accessing these funds is relatively simple. Your financial advisor will be able to assist you in issuing a withdrawal instruction to your investment house, and the funds should be paid out within 7 to 10 days. There are generally no penalties involved when disinvesting, although some providers reserve the right to charge a small administration fee if you close your account. Any withdrawals from your discretionary unit trust portfolio may trigger a capital gain, although bear in mind that the first R40 000 per year is CGT exempt. Before disinvesting, chat with your financial advisor to fully understand any potential CGT implications.

Endowments

Withdrawal legislation on endowment policies depends largely on whether you are in the policy’s restriction period or not. The legislation permits investors to make one loan and withdrawal during the first five years (i.e. the restriction period) of the policy. The maximum loan or withdrawal amount is limited to the lesser of:

  • Your contributions during the restriction period, including any market value in the policy the day before the restriction period started plus 5% compound interest; or
  • The market value of the investment account less fees and charges. Any remaining balance (more than R2 500) must stay invested until the restriction period ends.

If your policy is not within the restriction period, you are allowed to withdraw part or all of the value of the policy, which is the market value in the investment account less fees and charges, and/or schedule regular withdrawals according to your needs. When withdrawing from your endowment, bear in mind that endowments are taxed at a flat rate of 30% for both individuals and trusts.

Preservation fund

If you have a pension preservation or provident preservation fund in place, the legislation permits you to make one full or partial withdrawal from each preservation fund before retirement. If you have not previously withdrawn from your preservation fund, you can then exercise your right to make a full or partial withdrawal before the minimum retirement age. However, if you have previously withdrawn from a preservation fund, you will only be able to access the balance in that fund at the minimum retirement age of the fund.

In terms of tax, you will be taxed in accordance with the withdrawal lump sum tax table (see below), which means the first R25 000 is not taxed, and the balance will be taxed at a rate of 18%. If you are unsure whether you have made a previous withdrawal from your preservation fund, speak to your financial advisor who will be able to assist. Your financial advisor can assist you in issuing a withdrawal instruction to your investment house, and the funds should be paid out in about 10 days if there are no delays, bearing in mind that you will require a clearance from Sars.

 

Taxable income (R)​ Rate of tax (R)​
1 – 25 000​ ​0%
​25 001 – 660 000 ​18% of taxable income above 25 000
​660 001 – 990 000 ​114 300 + 27% of taxable income above 660 000
​990 001 and above ​​203 400 + 36% of taxable income above 990 000

 

Money market

If you have money invested in a money market fund on a unit trust platform, it is likely parked there to provide for financial emergencies such as this. Money market funds are perfectly designed for rainy-day funds and are therefore easily accessible. As the investor, you will need to complete a written withdrawal instruction together with your Fica documents and bank account details. Failure to submit all your Fica documents can delay the withdrawal process, so be sure to include all documents required on the checklist.

Bear in mind that each investment house has different daily cut-off times for money market withdrawal instructions, and funds are generally paid out within a couple of days of receipt of instruction. In general, no fees are charged for withdrawals although some investment houses will charge a fee if you close your account. Most service providers have a minimum withdrawal amount of around R2 000.

Tax-Free Savings Account

If you are contributing towards a tax-free savings account, you will know that your contributions are limited to a maximum of R33 000 per year and a total lifetime contribution of R500 000. Investors are free to withdraw the funds in their tax-free savings accounts at any time by issuing a withdrawal instruction to the relevant service provider. Bear in mind that TFSA service providers cannot charge a penalty over R500 for withdrawals.

It is important, however, to understand the long-term consequences of withdrawing from your TFSA. Any withdrawal you make now will affect your lifetime contribution limit. For example, if you have R200 000 saved in your TFSA and make a full withdrawal, your total remaining lifetime contribution will reduce to R300 000 so be sure to consider your withdrawal options carefully.

FUNDS THAT CANNOT BE ACCESSED

Retirement annuities

It is not possible to make withdrawals from a retirement annuity before the age of 55, with the only two exceptions to this rule being early retirement as a result of ill-health or withdrawal due to emigration. Concerning putting investment contributions on hold, it is important to distinguish between a unit trust RA and an insurance RA. 

Unit trust RA

If you are contributing towards a unit trust RA, you can put your contributions on hold indefinitely with no penalties or fees being imposed. As and when your financial position improves, you can restart your contributions at no cost and with very little administration.

Insurance RA

It is generally not possible to put contributions to an insurance RA on hold without making the policy ‘paid-up’ – which effectively means cancelling the policy. If you make your policy ‘paid up’, the insurer may charge penalties and fees for early termination and these costs will vary from insurer to insurer. Before considering this option, be sure to request a quote from your insurance company so that you have full insight into how much they will penalise you. 

Pension and provident funds

You may not access the money in your pension or provident fund before the fund’s retirement age other than in the case of early retirement, retrenchment or resignation from the company. If you resign or are retrenched, you will be taxed according to the withdrawal lump sum tax table above. Effectively, the first R25 000 is not taxed, the balance to R660 000 is taxed at 18%, the balance to R990 000 at 27% and the rest at 36%.

ADVISOR PROFILE

Devon Card

Crue Invest (Pty) Ltd

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