Question:
I have two retirement annuities (RAs) from different companies worth R60 000 and R22 400.

Considering the R75 000 rule, can I cash them in?

Answer:
As mentioned in a previous article when dealing with any retirement funds one must be very careful to distinguish between two different events, namely withdrawal and retirement. Withdrawal refers to a member exiting the fund before retirement. Cashing in of a retirement fund benefit usually refers to withdrawal.

You do not mention your age, but a member of a retirement annuity may not access the accumulated benefit in the RA fund before the age of 55 except in specific circumstances:

  • death of the member

  • disability of the member

  • formal emigration of the member

  • if the accumulated fund value does not exceed R7000

Given the value of the two RAs and assuming that you are not yet 55, you will not be able to withdraw the funds (i.e. cash in the RAs).

You refer to a R75 000 rule ? let me clarify:

When a member of a RA fund reaches age 55, he or she becomes entitled to a retirement benefit. The general rule is that a maximum of 1/3 of the retirement benefit may be taken as a lump sum (subject to taxation) with the balance being applied to purchasing a compulsory purchased annuity ? which should pay the retired annuitant an income/annuity/pension for the rest of his life.

A special dispensation does, however, exist where the total retirement value within a fund does not exceed R75 000. In such an instance the retiring member may access the full benefit as a lump sum ? no portion needs to produce an income. The rationale for this exception is that if 2/3 of the retirement value is R50 000 or less it may not be viable for the retiree to purchase an annuity. Costs associated with purchasing and maintaining the annuity product simply does not make maintaining such an annuity reasonably viable.

Please also bear in mind here that one person may own two RA products within the same fund. Consideration is then given to the total value within the fund ? not per product ? when determining the R75 000.

If you were therefore older than 55 you would be able to access the accumulated benefit in the two RAs as retirement benefits. Given that you state your two RAs are with different companies (and therefore likely in different funds) the total within each fund would be less than R75 000 and you would likely be able to access both amounts in the form of lump sums.

When making any decisions around retirement provision I would advise you to do so after consultation with a Certified Financial Planner and as part of a holistic financial plan.

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