I was retrenched in August 2015 and opted to take a third of the money to pay debts and invest the remaining money, which I get some percentage of on a monthly basis. I need to buy a property with some money left in my retirement annuity (RA). How can I access it or part of it?
Mduduzi Luthuli - Luthuli Capital (Pty) Ltd
The response below is a general view and does not constitute advice for your specific needs. However, it may be used as a guideline to assist you in your financial decision.
With the harsh realities of our economy, retrenchments have become a tragic reality for many families. Firstly, I commend you on using some of your payout to settle some outstanding debt, and hope that you can remain debt-free.
While you refer to a RA, the fact that you are getting a monthly income based as a percentage of the invested lump sum leads me to believe that in fact your funds are invested in a living annuity. One can’t receive a regular monthly income from their RA.
A retirement annuity
Assuming the funds are in an RA, it should be noted that you can only withdraw from a RA if:
- Your current fund balance is less than R7 000
- You emigrate, or
- You become permanently disabled.
Outside of the above conditions, you would need to wait until minimum age 55 before having any access to the funds.
Or a living annuity?
As indicated above, you mention receiving a percentage of the invested capital as a regular income. This has the characteristic of a post-retirement product. Additionally, your referral to involuntary retrenchment and opting to take one-third of your money as cash also leads me to believe that your funds are invested in a post-retirement product.
The rules of pension, RA or preservation funds regulate that you can take up to one third of the funds in cash, but the other two thirds must be invested into a living annuity or life annuity that will provide you with a monthly retirement income.
An involuntary retrenchment from your employer’s retirement fund may be treated as early retirement, thus evoking the one-third/two-third rule and should be taxed per the retirement lump sum tax table, subject to the cumulative value of any previous retirement fund withdrawals made.
I’m assuming it is a living annuity, but it could also be a life annuity that you’re earning an income from. For the purposes of keeping this response a reasonable length, I will assume the former and proceed as such.
What is a living annuity?
Simply put, a living annuity is where your income is generated from the point at which you retire. In this case, it would be early retirement due to involuntary retrenchment.
When you have the option to retire from your pension, provident, preservation fund or RA, you can invest the amount that you cannot access in cash (two thirds or the whole amount) into a living annuity (or life annuity).
A living annuity gives the investor the freedom to adapt their income level (within the legal limits) and the frequency at which they receive their income once a year, which means you can adapt your cash flow to meet your changing needs. You can also choose the underlying investments to ensure they match the level of risk you feel comfortable with and, when you die, the available money is transferred to your beneficiaries, enabling you to leave a legacy.
From the information you’ve provided, we don’t know which product is paying you the monthly income nor whether you have found another job to supplement that income. The purpose of a living annuity product is to give you a sustainable income for many years, thus giving the investor withdrawal access would defeat that purpose. That being said, if the value of your living annuity drops below R50 000, you may withdraw your money as a taxable lump sum.
In a nutshell, access to the money as a lump sum withdrawal to buy a property is dependent on the current fund balance and prior decisions made. I strongly recommend that you contact a qualified financial advisor for guidance so you can make an informed decision.