Why do I have to wait until 55 to withdraw from my RA?

It's the youngest age at which a retirement fund member can legally retire according to the Pension Funds Act.

I have a provident fund with Old Mutual, which will pay out at 65, or I have an option for an early payout at 55. I enquired about stopping payment and having the money paid out to me now as I want to use it towards an immovable property. I have a provident fund through my employer, so this was one I paid myself.

I was informed that I cannot withdraw the money. I can stop payment towards it, and it will not grow any further, but I cannot withdraw the money. How is this possible? 

If I stop paying, I must wait until at least 55 to withdraw the funds whereas I can use the money now. I am 37 years old so I must just leave my money there for years? Could you please advise me regarding this?

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Dear reader,

Thank you for your question.

As always when responding to these types of questions we must begin with the comment that without an in-depth consultation with you it is quite difficult to provide you with the correct and most appropriate advice. Your question does contain detail but without the complete details of the retirement planning products in question, it is quite difficult to provide you with the detailed advice you may be looking for.

As always in these matters, it is important for you or anybody else in this position to consult with an independent, licensed financial planner. The financial planner will be able to provide you with the most appropriate advice based on the type of retirement planning products you are invested in after you have provided them with the details of the retirement planning products in question.

Now, let’s try and respond to your question. You begin by saying that you have a provident fund with Old Mutual and this is a “provident fund” that you have paid yourself and not through your employer. You also mention that you enquired about withdrawing the capital value of this “provident fund”, but you were informed that you cannot and that “it will not grow any further”. You also mentioned that the earliest you would have access to this capital is after age 55.

The details you have provided to me sounds like you have a retirement annuity policy and not a provident fund.

If this is the case, then the structure of this investment is that you contribute an amount of money (either once-off or through a monthly debit order) and you would be able to deduct the contributions from your taxable income (within certain limits).

Retirement annuities are governed by the Pension Funds Act. This gives you tax-deductibility of the contributions, but it also then means that you would not be able to access the capital prior to age 55. Age 55 is the earliest retirement date when a member of a retirement fund can legally retire according to the Pension Funds Act. The general strategy behind this is to encourage the population to provide for their own retirement, rather than rely on the government old-age pension, thereby reducing the government’s burden.

You would be able to stop contributing to the retirement annuity policy and the capital would remain invested and the capital would grow in accordance with the growth enjoyed in the underlying fund which would be invested in the financial markets.

So while your capital contributions would not increase (as there would be no further contributions), the value of the retirement annuity would grow through the investments that your capital is exposed to within the policy.

Should you at any time not be happy with the performance (growth rate) of your capital, you are able to either switch the underlying investment funds or completely move the annuity to another provider if you have concerns about the product provider itself.

So, yes unfortunately you will not be able to use this capital to purchase immovable property.

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

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RAs are generally a rip off. Old Mutual ? Better say nothing about this lot. In uncertain times you don’t want to have immobile , locked in assets.

I guess the reader means they have an RA with Old Mutual and a Provident Fund via employer.

Yes, one cannot take money out of a RA before one retires, upon which one can access 1/3 as a lumpsum (also if it is below a certain value when on retires you can take all out and when one emigrates).

Your RA should grow, depending on market and fees even if you were to stop your contributions, Old Mutual not mentioning a penalty might mean it is a unit trust RA and not a life policy RA, so you should be able to switch the RA to another provider (examples, Coronation, Sygnia, 10X) of your choice via a Section 14 transfer, if you want to pay less fees than with Old Mutual.

End of comments.

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