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Can I transfer my GEPF pension fund into a private living annuity at retirement?

If so, are there any tax consequences to consider?

Can a government employee who belongs to the Government Employees Pension Fund (GEPF) transfer their whole pension fund into a private living annuity at retirement? If so, are there any tax consequences to consider? I have noted that the GEPF on its website has guidelines that indicate it provides an annuity which appears to be a guaranteed life annuity of five years post-retirement at least.

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Thank you for your question. The GEPF was founded in May 1996 when various public sector pension funds were consolidated as a single entity.

It is a juristic entity governed by the Government Employer Pension Law of 1996. Fiduciary functions are the responsibility of the Board of Trustees, which is represented by an equal number of employer and member representatives. They represent more than 1.2 million active members and more than 450 000 pensioners and other beneficiaries.

The GEPF is the biggest fund in Africa and has more than R2 trillion in accumulated funds. These funds are managed mainly by the Public Investment Corporation (PIC), while the administration has been outsourced to the Government Pensions Administration Agency (GPAA).

The biggest benefit of this fund is that it has been structured as a defined benefit pension fund and that means that all the members’ and beneficiaries’ benefits are guaranteed.

In simple terms, it means that members of this fund do not have to be concerned about market fluctuations and anything associated with investment risk as their eventual annuity payments are guaranteed.

The well-published debacle around the Transnet pension fund unfortunately highlighted the concerns of members as to the actual wellbeing of some of these schemes – and the recent argument put forward by certain role players to have income levels capped at a paltry 4% to assure the solvency of these schemes going forward has also increased members’ uncertainty as to whether their interests will in fact be managed optimally and whether there will be enough annuity income to live off.

The GEPF’s current retirement age is 60. If a member applies for early retirement from the age of 55, then such a member could potentially lose 0.33% per month of the retirement benefit accumulated to date. Recently though this rule has been softened.

But it is advisable to familiarise yourself with any penalties when accessing any retirement benefits early.

The only members who may in fact transfer their investment benefits from the GEPF are those who have resigned or who have been discharged. On resignation, a member may take full benefit of accessing a lump sum or may then decide to transfer the entire benefit to an approved preservation fund in order to access the capital at a later stage. The vested rights principle may be applicable here considering the recent changes to retirement structures that are now applicable from March 2021.

If a member is discharged due to reasons not of their own doing, such as ill-health, injury while on duty, or restructuring, then their benefit will be calculated based on whether such member has been employed for a period of less than 10 years or exceeding 10 years. If the employment period is less than 10 years then a single lump sum is payable, while a member with an employment period exceeding 10 years will be entitled to a lump sum (gratuity) payment and a monthly annuity sum, which is calculated by the scheme.

If a member is discharged due to misconduct, self-inflicted illness, or injury, then this will be treated as a resignation and the member’s benefits may then be transferred to another retirement investment provider, or cashed in.

The GEPF rules prevent a member from transferring benefits to another provider if they have already retired from the GEPF. Any member who wishes to have benefits transferred from the GEPF must therefore resign and must not apply to retire from the GEPF. The benefits can then be transferred to a recognised retirement preservation portfolio.

When retiring from any preservation fund, the retirement tax tables, as published by Sars, will be applied to any withdrawals made. The current one-third tax-free lifetime limit will be applicable, but with GEPF investments there are further potential tax-free benefits when accessing the capital.

If a member joined the GEPF before March 1, 1998, then any cash portions taken may be potentially exempt from tax. Benefits accrued after this date may be accessed in accordance with the one-third tax-free rule. It is however advisable to request a tax directive from the retirement provider where the preservation portfolio/s has been set up, so that informed decisions can be made as to how much of the benefits may be accessed without potentially triggering a tax liability. The remaining capital not taken as a cash portion must be applied to purchase an annuity that can offer a regular annuity income stream.

Although the GEPF is a defined benefit structure that offers guaranteed income streams to the member, the member, unfortunately, does lose control of the capital and will not have any insight into the fund’s investment selection and may not change the income levels at any stage if they decide to retire within the structures of the GEPF.

At retirement, the annuity is guaranteed for five years and this guaranteed amount will be paid to a spouse or partner as a once-off lump sum if the member dies within the first five years of retirement. After the initial five-year period had lapsed, then the annuity benefit payable to a spouse or partner may be reduced to 75%, or even less of the annuity amount received by the member.

A minor’s benefit is well protected in the structure, but income payable to a minor may again drastically reduce the annuity payable to the spouse or partner.

It is thus crucial to understand the actual benefits of receiving the guaranteed annuity by retiring from the GEPF and forfeiting the capital or to rather take control of one’s own destiny by resigning and to structure a retirement portfolio, with an annuity stream, outside of the GEPF that can also be adjusted annually in accordance with personal preferences and or needs and that further allows the possibility of the remaining capital to be left to an estate or beneficiaries.

Do you have any questions you would like answered by registered financial planners?

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COMMENTS   13

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As I recall my sister had her GEPF funds paid out tax free. She invested in property while taking a new job. At retirement the properties were sold to purchase a living annuity.

Why put it in a tax saver if they are retiring?? They are putting after tax money into a R A ?????//

You get a tax break on the pension payments for many years. Also the lump sum is protected in case of divorce.

How did your sister manage that she has not paid any tax on her pension? Is there some sort of allowance if you use it to purchase property?

The capital ammount must pass through a retirement annuity vehicle which is fully deductible on an annually reducing basis as pension income is declared.

The GEPF as a defined benefit looks like a ticking time bomb for SA Tax Payers?

I have a small interest in a legacy defined benefit fund (as a pensioner). I now realised that defined benefit pension fund administrators have a powerful tool: there is no commitment/obligation for the annual increases to be inflationary linked. Over a period of not adjusting pensions at inflationary levels this will be to the detriment of pensioners. But should give “SA Tax Payers” some comfort.

How is the lump sum calculated if available when resigning? Based on the actuarial benefit of the defined benefit (which at age 60 for a male would be about R1M per 6,500pm promised defined benefit if one looks at current life annuity tables). Or somehow based on contributions?

For many members GEPF is a HUGE benefit – providing them with an income way higher than contributions to a defined contribution fund might have returned. If I use the GEPF calculator the monthly pension I would get implies a lump sum many times the capital in my defined contribution fund.

The same applies elsewhere in the world – where these benefits have become more and more valuable (on an actuarial basis) with ageing and low interest rate environments. In the US where some have the option of withdrawal with actuarial benefits middle ranking police officers, firemen etc. can get a withdrawal benefit of a few million dollars.

Why do you not want to develop the nation by leaving your savings in infrastructure investments?

After a lifetime of working, investing and paying income taxes, I don’t think anyone can accuse a retiree of being unpatriotic or not wanting to build a nation. At that point I think you’ve earned the right to tell anybody who wants your money to put forward a worthy low-risk investment proposal or bugger off and mind his own business. Guilt trips should have no place in retirement planning.

Mainly because no one of the voting population want to pay for any infrastructure use. — Think e tolls for road, water for dams, electricity for power stations, housing for housing developments — THAT IS WHY !!!

Because ANC cadres are in charge of the money. That’s why.

GEPF – in the tax payer we trust, to cover all short falls due to PIC reckless spending on etoll, amongst others. Then we’re not even talking about the curse of being (mis)ruled by the corrupted cader-infested current regime. Elsewhere, it is reported that the few remaining whiteys are carrying the lion’s share of the SA tax curse. These whiteys are also emigrating and retiring, so this golden goose is busy shrinking, my dearest GEPF. Tie down the hatches, me dearies, stormy seas ahead….

End of comments.

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