I recently received an amount of roughly R68 000 from my previous retirement annuity, Momentum FundsAtWork, after my previous employer requested it without my consent. The funds were deposited in my bank account. Sars charged me R9 000 tax on this. Is there a way to recoup the tax paid? I am 50 years old.
Thank you for sending the question through. In order to answer your question better, we would need to clarify some facts and make some assumptions.
In your question, you mention that you had a retirement annuity fund through your previous employer. However, as it was a Momentum FundsAtWork product provided by your employer, it must have been either a pension or a provident fund. If the product was a retirement annuity, you would not have been able to access the funds before age 55 (except in certain rare circumstances).
Secondly, as you mentioned your previous employer, we have assumed that you left their employ as a result of resignation, retrenchment, or dismissal. In any of these instances, as a member of the fund, you would have had the option to have your accumulated funds paid to you in cash, subject to tax. However, this option can only be initiated and authorised by the retirement fund member and not by the employer. Once the member issues an instruction to have the funds withdrawn, the South African Revenue Service (Sars) will begin the process of issuing a tax directive and, once this process starts, there is no way of stopping it. As a result, you would not be able to recoup the tax in your case.
However, if the correct procedure was not followed by your employer, you may be able to bring a case to the Office of the Ombud for Financial Services Providers (FAIS Ombud) to seek compensation.
When leaving your employment, your previous employer should have provided you with a withdrawal instruction document wherein you would have had the option to:
- Remain a deferred member of the umbrella fund; or
- Transfer to a new employer’s fund (if available); or
- Transfer to a personal preservation fund; or
- Cash in the funds.
Once you had made your choice, the employer would need to submit the form to the fund administrator for processing.
If you had elected to remain as a deferred member of the umbrella fund or transfer to a new fund or preservation fund, there would have been no tax implications.
However, if you had elected to withdraw the funds, such withdrawal would be subject to tax. As you are under the age of 55, your withdrawal would be taxed as per the prevailing withdrawal tax table.
If you did not complete the withdrawal instruction form, the umbrella fund (being Momentum) would by default have placed you in the deferred status where you would have remained a member of the umbrella fund until such time as you elect otherwise, or until retirement.
As you received the funds in cash, there must be a record with Momentum FundsAtWork where you signed the withdrawal option. We recommend that you request a copy of this written instruction from Momentum FundsAtWork. If they cannot find proof of such an instruction, then you may be in a better position to request that they fix the error.