Information about preservation funds
What is a preservation fund? | How do I invest in a preservation fund through PSG Online? | What are the advantages of investing in a preservation fund? | What are the disadvantages of a preservation fund? | What are the costs of investing in the preservation fund through PSG Online? | Where do I deposit funds? | Which unit trusts can be used in a preservation fund? | Other questions | Where can I find more information about preservation funds?
What should you do next?
If you change employer and move from a company which has a pension or provident fund to a new company it will be your advantage to preserve your retirement savings in a tax efficient vehicle. Preservation funds have been designed with this purpose in mind.
Preservation funds can also be used if you are retrenched, resign, if your employment is terminated or if your occupational retirement fund is closing down. Preservation funds can also be used to house the proceeds of an amount awarded to a non-member spouse in terms of a divorce order.
For the most part, preservation funds are subject to the same rules as pension funds, provident funds and retirement annuities. Underlying holdings should be invested according to pension funds guidelines and the trustees of the fund have an obligation to the dependants of the member, in the event of the death of the member.
The central difference between pension funds and provident funds is that on retirement, a pension fund member may take a maximum of one third of the benefit in cash, whereas a member of a provident fund may take the full value of the proceeds of the retirement fund in cash, subject to the requirements of the South African Revenue Service.
It follows that the rules of pension and provident funds should be maintained in a preservation fund. A pension preservation fund is designed for former members of a pension fund while a provident preservation fund should be used by former members of a provident fund.
Preservation fund rules permit members to have access to their benefit on one occasion only, before retirement date in the event of retrenchment or ill health. If members elect this option, they can withdraw all or part of their benefits.
The rules of preservation funds do not provide for ongoing contributions to be made to the preservation fund. If you build up a second lump sum with a second employer and for example you are retrenched by that employer you may invest your benefits in the preservation fund.
At any time before retirement, you may make a full or partial once-off withdrawal (depending on whether the contributing fund was a pension fund or a provident fund), subject to tax payable to the South African Receiver of Revenue.
If the value of the preservation fund is less than R50 000 at the time of retirement, the full benefit may be withdrawn.
If you are interested in investing in a Preservation Fund, you should complete the simple online registration process.
- STEP ONE: Register online for preservation fund account and PSG Online web profile.
- STEP TWO: Provide us with your FICA details if you are new to PSG Online. PSG Online will open your pension/provident fund within 72 hours of receipt of your FICA documents.
- STEP THREE: Login to your collective investment scheme account. You will use the same username and password chosen when you registered for your web profile in Step One.
- STEP FOUR: Choose a unit trust fund (or funds) from our list of funds which are managed according to the Pension Funds Act
- STEP FIVE: Complete the documents for transferring your funds from your pension/provident fund to your nominated preservation fund. Click here to download these documents
The generally recognised benefits of investing in a preservation fund include the following:
- The tax free portion of the lump sum of a preservation fund at retirement is calculated in the same way as for any other pension, provident or retirement annuity. When you retire from the preservation fund, the proceeds are either tax-exempt or favourably taxed in the hands of the taxpayer. This means that you can effectively defer tax liability from when you are working (and are likely to have a high taxable income) to when you are retired, when you are likely to have a lower income.
- You are not taxed when investing in a preservation fund (the money is transferred from your existing retirement fund with no tax consequences). During the course of the investment the fund is not subject to capital gains tax, dividend withholding tax or tax on the interest earned by the underlying holdings.
- You may make one withdrawal from a preservation fund prior to retirement. This withdrawal will be liable for tax. Otherwise, the law states that you cannot access your investment until you retire. A general exception to this rule would be a 'compulsory withdrawal' as required by a divorce order, or any payments made to the South African Revenue Service.
- A preservation fund does not form part of your estate for estate duty purposes.
- Like other retirement funds, the benefits in a preservation fund are protected against creditors in the event of your insolvency. This makes these funds especially attractive to taxpayers involved in high risk business ventures. You cannot use the assets in your preservation fund as security for a loan, nor cede or pledge it in any way.
Does the preservation fund have any further benefits?
- Investment choice. PSG Online offers a wide range of choices as the underlying holdings of our preservation funds.
- PSG Online offers you access to a preservation fund with online, anytime, real time access to your retirement plan.
- Transfer from and to other funds. Transferring your existing preservation fund to the PSG's Preservation Fund is a relatively simple procedure. Simply download the transfer form, fill it in and fax it to us. We'll contact your current fund and oversee the process. Please call our Help Desk if you would like to discuss the process.
- Moving your preservation fund. The fund rules of our preservation fund allow fund members to move their investment to other service providers. The only restrictions imposed by PSG Online are those that are required by law.
Current regulations require that preservation funds, like other retirement funds, should be invested according to pension fund investing guidelines. Two aspects of Regulation 28 of the Pension Funds Act are considered somewhat restrictive.
The first is the maximum permitted level of exposure to equities; this is currently 75%, and considered too conservative for younger investors. The second is the permitted level of exposure to offshore assets; this is currently just 30% (5% in Africa and 25% in the rest of the world).
Pension fund legislation is designed to ensure that payments to pension funds, retirement annuities , provident funds and preservation funds is ultimately for the benefit of the member and then his or her beneficiaries. In terms of the rules of retirement funds, you, the investor don’t have freedom of testation. Therefore, you are not at liberty to bequeath the proceeds of any retirement fund to a neighbour, your personal instructor, or even to a charity if you have dependents. You can nominate these people but that does not mean that they will ultimately be awarded a benefit by the trustees. It is the responsibility of the trustees of the fund concerned to ensure that family members who depended on you while you were alive receive the benefit of your fund after your death
- A monthly flat fee of R20 per preservation fund is levied.
- Platform fees, fund manager fees and other costs are dependent on the choice of underlying holdings.
All investing products carry market risk. However, when investing over the long term for retirement, there is a greater risk of not taking enough risk, or investing at risk levels too low to outperform inflation.
Of all the financial services and products available, retirement products are amongst the most regulated. Financial service providers and their agents have to comply with numerous rules and regulations. They are also closely monitored by the Financial Services Board
For preservation fund accounts please make deposits to the following bank account with your portfolio number as a reference:
|Bank||Standard Bank of S.A. Ltd|
|Account name||PSG Life Compulsory Deposit Account|
|Deposit reference number||Your unit trust portfolio reference number or ID number|
For a full list of PSG Online banking details click here.
Please click here to view a complete list of our funds and fees.
Q: Are there limits on the number of switches permitted each year?
A: Currently no. However, excessive switching is generally not sensible investing given that the costs of switching can offset the gains you might make.
Q: What age is deemed to be the Preservation Fund retirement age?
A: You can retire from your PSG Online Preservation Fund at the age of 55. This is not a PSG Online ruling, this stipulation applies to all retirement fund products governed by the Financial Services Board.
Q: What happens to my Preservation Fund investment when I reach 55?
A: When you retire from a Pension Preservation Fund you are obliged to pay the South African Revenue Service any money owing as calculated by the Income Tax Act, as amended. In general terms the cash portion (one third of the value of the assets) is tax free while the balance is being taxed according to a formula based on your average tax rate.
You may take a third of the balance of the capital in cash. The remaining sum has to be invested in a living annuity product, except where two thirds of the value does not exceed R50 000. You can withdraw your money from a living annuity at a predetermined rate).
Q: What happens if I die before retirement?
A: At your death your dependants and not necessarily your nominated beneficiaries have the first right to the benefits of your preservation fund.
Q: What happens if I am compelled to retire before the age of 55 due to ill health?
A: In exceptional circumstances, members of preservation funds may retire from the fund before the age of 55. PSG would require you to provide medical or other evidence as requested by the trustees (to be provided at the member's cost), confirming that the member is permanently incapable of working in his or her current occupation.
Q: What happens if I want to emigrate?
A: If you emigrate, and you have already taken your once-off withdrawal, you may not access your benefits until retirement.
You can find more information about preservation funds on our unit trust FAQ page.