A Fin24 reader wants to withdraw his provident surplus to make ends meet before he retires in 2022.
I'm 64 and will be retiring in March 2022, when I turn 65. I want to withdraw in advance the R92 000 that is a surplus, which was added to my provident fund. The reason for that is that I need an income while waiting for my pension to pay out.
My question is, what is the procedure to apply for that surplus fund and what will the tax implications be?
James Ferreira CFP, Private Wealth Manager at Resolute Wealth Management responds:
Firstly, a surplus arises in a retirement fund when an actuary determines that its assets exceed its liabilities. The reader has two questions that need to be answered which relate to accessing their allocated surplus and the relevant tax implications.
1. As you are currently employed, the procedure to access your surplus funds and any other administrative queries should be handled through your employer and directly with the administrator of your provident fund.
2. With regards to the tax implications of applying for your surplus, the administrator should also be able to offer you accurate tax advice on accessing your surplus in conjunction with your pension pay out through obtaining a tax directive from SARS.
More information is required regarding when the surplus was allocated to you, the total value of your provident fund, how you have chosen to have your pension pay out to you and if you have taken any previous withdrawals from your retirement funds or received severance pay outs to give you an accurate answer on how the R92 000 will be taxed. Based on an interpretation note published by SARS in 2020, the following tax treatment is applicable to actuarial surpluses for active members.
Tax treatment of actuarial surplus apportionment schemes approved before 1 January 2006
Allocations to active members of the fund could only be used to enhance their fund credits. These amounts form part of the member’s lump sum benefit or annuity payable on exit from the fund as a result of retirement, withdrawal or death.
Tax treatment of actuarial surplus apportionment schemes approved on or after 1 January 2006
Surplus amounts allocated to active members of the fund are used to enhance the active members’ fund credits and are taxable as and when that member becomes entitled to any lump sum benefit or annuity on exit from the fund as a result of retirement, withdrawal or death.
Based on the limited information you have provided; my assumption is that because you are still employed and the surplus has been added to your existing provident fund, your surplus will be taxable as a result of retirement, withdrawal or death. The retirement tax table that is applicable to you (which will include your R92 000 surplus) as you are over the age of 55 is as follows:
Before making any long-term financial decisions, especially those pertaining to retirement which can have far reaching tax and estate consequences, my suggestion would be to seek the support of an independent and Certified Financial Planner who can offer you advice based on your personal circumstances.
Questions may be edited for brevity and clarity.
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