From 1 March 2021, new annuitisation rules will be introduced to provident funds for members who are younger than age 55 on this date. These rules are to align to those currently applicable to pension funds. This means that members retiring from provident funds and members retiring from pension funds will be subject to similar rules regarding accessing their savings as a cash lump sum at their retirement.
What do the new rules entail?
Provident fund members younger than age 55 on 1 March 2021 may access their retirement savings as follows:
1) All retirement fund contributions already made into the provident fund, plus investment growth on these contributions, accumulated up until 28 February 2021, including any future investment growth on this accumulated amount from this date onwards, may be accessed as a cash lump sum at retirement. Alternatively, an income for retirement can be purchased with the accumulated amount at retirement, should the member wish to choose this option instead.We refer to this as vested benefits.
2) Retirement fund contributions made into the provident fund after 1 March 2021, plus investment growth on these contributions until retirement will be treated differently and will align to how pension funds are treated. At retirement, members can only access up to one-third of this accumulated amount as a cash lump sum, and the balance must be used to purchase an income in retirement. We refer to this as non-vested benefits.
If, however, the non-vesting benefits fall below R247 500, the full amount may be accessed as a cash lump sum at retirement.
Illustrated below is an example of how these new rules may impact provident fund members.
When will a provident fund member be unaffected by the new rules?
Members may be unaffected by these new rules, under certain conditions. A provident fund member will not be required to purchase and income with part of their savings at retirement if:
Source: Liberty – Member Communication to Retirement Reform
Issued: 22-Feb-2021