Can I withdraw funds from my RA?

A Fin24 user wants to know how to make withdrawals from a retirement annuity. He writes:

Is it possible to withdraw funds from my retirement annuity (RA)? If so, do I need to give notice of my intention to do so?

Danelle Esterhuizen, legal specialist for senior market advice at Sanlam, responds:

The primary purpose of an RA is to save towards retirement, and to provide benefits at retirement.

Historically, RAs contained lock-in provisions so that members could not access any benefits before reaching the age of 55.

Even then, they could access only a retirement benefit as contemplated in the act (in other words, a third of the benefit). The other two-thirds had to be used to purchase an income. In addition, members could not belong to an RA after the age of 70.

In 2008 some of the rules changed and a few small exceptions were introduced. For example, the upper age limit of 70 was removed, enabling members to keep on contributing to the fund past their 70th birthday.

Nowadays, the entire benefit amount in the RA (not only a third) can be withdrawn as a lump sum if the benefit is less than R7 000.

Moreover, should a member emigrate, the entire benefit can be taken as a lump sum subject to exchange control. Or, should the benefit in the fund not exceed R75 000, the entire amount can be taken as a lump sum.  

In case of divorce, the court can also make an order in terms of which the non-member spouse may be allowed to access a portion of the benefit, subject to certain tax rules.

In the event of a member becoming totally incapacitated due to sickness, accident, injury or infirmity of mind, the trustees may decide to allow the member to take early ill-health retirement. In this case, the member retires in the normal way and becomes a pensioner.

These, however, are the exceptions to the rules.

In most instances it is not possible to withdraw funds from your RA before you turn 55. If you run into financial difficulties before then, you can stop making contributions and the benefit will stay in the fund, and grow until you retire from it.

Even though you are not contributing, you will still only be allowed to access the money at or after the age of 55.

When you turn of 55, you will in most instances only be allowed to withdraw a third in cash, and you should consider the tax implications before doing so.

RAs are a tax-friendly investment, and for that reason strict rules in terms of the Pension Fund Act govern RA funds.

It is always wise to contact a competent financial adviser for further assistance.

 - Fin24

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