A Fin24 user wants to know more about withdrawing some and then transferring the rest of her provident fund value over to her new company. She writes:
I have resigned from my current company. My provident fund value is currently sitting at R240 222. I would like to take some money and use it and transfer some money to the provident fund scheme of the company that I'm going to be joining. Is it true that there's an amount that doesn't get taxed when one does a withdrawal? If yes, what it the limit?
Andrew Duvenage CFP® and executive director at NFB, responds:
When one resigns from a company, it is necessary to make a decision on the treatment of your pension/provident fund investment. There are 3 options available:
- cash the fund in,
- preserve the benefits by transferring it to a preservation fund, RA or an approved retirement fund
- Or do a combination of these two options.
Regulations do allow that one can make a cash withdrawal, and the first R22 500 is free of any tax (this is a cumulative amount, meaning that once it has been used, it is gone for good, and does not apply to each withdrawal one makes).
If the cash withdrawal amount exceeds R22 500, various tax tables are applied to the amount.
Amounts that are transferred into preservation funds and approved retirement funds, are done so free of any tax.
While it may be tempting to exercise this tax free cash withdrawal on resignation, we would advise investors to avoid doing this if at all possible.
The operative word with retirement savings is “retirement”. Investors should if at all possible attempt to preserve their benefits so that when they do reach retirement, they have sufficient funds to meet their income needs.
By continually dipping in to retirement savings when changing jobs, investors run the risk of having a depleted capital base at retirement.
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