MONEY CLINIC | Do I have to resign before age 60 if I want my full provident fund payout?

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From 1 March 2021, all contributions from that date to a provident fund are treated the same as pension fund contributions.
From 1 March 2021, all contributions from that date to a provident fund are treated the same as pension fund contributions.
Nitat Termmee

A Fin24 reader questions the effect the recently passed pension laws will have on his provident fund payout.

He writes: 

Recently, legislation came into effect which will see provident funds administered in the same way as a pension fund.

For more than 15 years, I had my pension and provident funds equally split. With this new law, does it mean I will have to resign before age 60 to get the total provident fund payout, less tax?

John Anderson, Executive: Products, Investments and Enablement at Alexander Forbes responds: 

Yes, you are correct that there has been a change in how provident funds are treated. From 1 March 2021, all contributions from that date to a provident fund will be treated the same as pension fund contributions.

However, it is important to note that:

(i) for individuals who are 55 years and older at 1 March 2021, contributions will be unaffected and will continue to be treated in the same way as before.

(ii) Any amount in your provident fund accumulated to 1 March 2021 will be ring-fenced, and this amount together with net fund returns thereafter will be treated in the same way as before.

There is also no change in respect of the treatment of pension funds.

Therefore, in terms of your existing retirement savings up to 1 March 2021, there is no change. If you were older than 55 years at 1 March 2021, there will also be no change in respect of all your future provident fund contributions. If you were younger than 55 years on 1 March 2021, it is only your contributions to the provident fund after that date that would be affected, but all amounts before that are treated the same as before.

There is therefore no need to resign as you suggest, and no benefit in doing so. In addition to paying tax on any amounts cashed in now, by resigning, you would also lose what you have accumulated to date and the benefit of compound interest on those savings. 

Questions may be edited for brevity and clarity.

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