I am in financial distress as I’m unemployed. I have made a once-off partial withdrawal of one third from my preservation fund with Old Mutual. Is there any way I can make another withdrawal, but not the whole amount?
Preservation funds are specifically designed to preserve accumulated capital which is intended for retirement and are attractive options for those leaving employment through retrenchment, resignation, or dismissal. All preservation fund product providers are subject to the same regulatory framework, with the Pension Funds Act and Income Tax Act being the most important.
One of the most notable advantages of a preservation fund is that owners are permitted to make a once-off total or partial withdrawal from their preservation fund prior to the age of 55, which is subject to tax as per the withdrawal tables, with the first R25 000 being tax-free.
As a preservation fund investor, you will only be able to access the balance of your funds after the age of 55, and for the purposes of answering this question, we have assumed that you are below this age.
You have indicated that you have a preservation fund with Old Mutual and that you have previously made a partial withdrawal of one-third from this fund after the funds were preserved.
Unfortunately, as you have already made use of your once-off withdrawal allowance, you will not be permitted to make another.
The earliest time that you can access these funds is when you reach age 55, at which point you will need to make critical decisions regarding the employment of this capital.
If your preservation fund balance exceeds R247 500 when you retire, you are permitted to make a one-third cash withdrawal, which will be taxed accordingly. Thereafter, you are required to use the remaining two-thirds to purchase a life or living annuity in accordance with your needs.
Subsequent to the retirement fund harmonisation legislation which took effect in May 2021, your accumulated interest in a provident preservation fund plus any future growth on those benefits as at February 28 2021 will be given ‘vested rights’ and you will still be entitled to commute up to 100% of these ‘vested benefits’.
If the value of your preservation fund is less than R247 500 at retirement, you are permitted to make a full withdrawal from the fund. Regretfully, this does not help you navigate your current financial situation.
Our advice is to find an independent financial advisor who can help you navigate the financial distress that you find yourself in and explore alternative solutions.