Preservation Funds

Preservation Funds

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Resigned or Retrenched?

Preserve your pension money Tax Free.

Preservation funds are designed to act as a temporary warehouse for withdrawal benefits from registered and approved pension or provident funds

Preservation Funds

• A preservation fund is a pension or provident fund, which has been registered with Registrar of Pension funds and approved by the SARS.
  
• It is a fund in which employees, who leave the service of a employer owing to dismissal (including
  retrenchment) or resignation, or in the event of the dissolution of the employer’s pension or provident fund, may invest their accrued fund benefits.
  
• The Income Tax Act changed during 2008 to also allow membership to
  
  • persons to whom a pension interest from a ex-spouse's retirement fund was awarded;
    
  • employees of an employer whose business was taken over by another employer in terms of Section 197 of the Labour Relations Act, 1995;
    
  • members of one preservation fund who choose to transfer to another preservation fund;
    
  • members or dependants who do not claim their fund benefits within 24 months of becoming entitled to it.
    
• A member’s accrued benefit in a specific provident or pension fund may not be transferred to more than one preservation fund, but the benefits may be divided between a preservation fund and an RA fund.
  
• The following are retained (preserved) in a preservation fund until retirement:
  
  • Accrued retirement benefits
    
  • Completed years of service (in some cases – see "Years of service" later in this section)
    
  • The tax-free pre-1 March 1998 portion with the Wealth Protector Preservation Pension and
    Provident Funds

Allowable transfers

• Only transfers from an employer’s pension fund or another preservation pension fund to the Preservation Pension Fund.
  
• Similarly only transfers from an employer’s provident fund or another preservation provident fund to the Preservation Provident Fund will be accepted.
  
• Only transfers from employee pension funds or employee provident funds of local authorities are
  permitted to the Wealth Protector Preservation Pension Fund or the Wealth Protector Preservation Provident Fund respectively.
  
• Benefits from a pension or provident fund may be transferred only when
  
  • an employee leaves the service of a participating employer owing to resignation, dismissal or retrenchment, or when
    
  • the pension or provident fund is dissolved completely
    
  • persons to whom a pension interest from a ex-spouse's retirement fund was awarded
    
  • employees of an employer whose business was taken over by another employer in terms of section 197 of the Labour Relations Act, 1995
    
  • members of one preservation fund who choose to transfer to another preservation fund
    
  • members or dependants who do not claim their fund benefits within 24 months of becoming entitled to it.
    
• The member’s gross benefits in the transferring fund must be transferred to the preservation fund,
  except if the benefits have been reduced as a result of:
  
  • the provisions of Section 37D of the Pension Funds Act, e.g. a housing loan granted to the member by the transferring fund;
    
  • the member transfers a portion to an RA fund; or
    
  • the payment of a portion to a non-member in terms of a divorce order, or in terms of a
    maintenance order.
    A transfer to a preservation fund is prohibited if the gross benefits have been reduced for a reason other than those mentioned above.
    
• A transfer from a preservation fund to an RA fund is not allowed.
  
• Employees whose retirement provision structure changes from a pension fund to a provident fund
  will not be able to transfer accrued pension benefits to a preservation pension fund in the event of
  such restructuring, except if the pension fund in question is dissolved completely.
  
• A transfer between two preservation pension funds or two preservation provident funds respectively is allowed.
  
• Sometimes after funds have already been transferred, surplus money or interest out of the same
  pension or provident fund (therefore the same transferring fund) becomes available for a
  Preservation fund member. Such additional one-off payments must be added to existing
  Preservation fund plans. If the one allowed withdrawal has already been made, no withdrawal can
  be allowed on the late payment, because the late payment forms part of one transfer with the
  original payment to the preservation fund.
  
• The taxability of money resulting from contributions made prior to 1 March 1998 and those made
  after 1 March 1998 differ for members of pension or provident funds at public sector funds such as
  these for the government and local authorities. However, members who transfer to a preservation
  fund must transfer their entire accrued retirement benefit (before and after 1 March 1998) to the
  preservation funds. Only one plan will be issued. The transferring Fund must clearly indicate the
  tax-free portion (in respect of contributions prior to 1 March 1998) on the transfer form. This tax-free portion will be forfeited if the plan investment is transferred from the Wealth Protector Preservation Funds to a fund that is not established by law (paragraph (a) fund).
  
• Transfers from an RA Fund to a preservation fund are not possible because the definition in the
  Income Tax Act of provident and pension preservation funds respectively does not make provision
  for it. Likewise will no transfers be allowed to a preservation fund from any unapproved fund (funds
  not approved by the SARS). This disqualifies transfers to a preservation fund from a foreign
  retirement fund.

For Expert Advice on transfers from Pension/ Provident Funds Tax Free to Preservation Funds: Complete this short form below!

Useful information:

Click here for: Transfer of Withdrawal Benefit from Approved Pension Fund to Retirement Annuity Fund and/or Preservation Pension Fund
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