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File picture: Pixabay


By Readers' letters Time of article published Oct 4, 2019

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I am 52 and will be resigning/getting retrenched from a provident fund soon. Will I be allowed to buy a living annuity? What are the tax implications, and will I be able to cash out R500000 tax-free?

Name withheld

Dulcie Weyks, a financial adviser from PSG Wealth Pretoria Irene Sovereign Drive, responds: A living annuity can be purchased only with a retirement benefit or a death benefit (if the fund’s rules allow). The earliest age at which you may retire is 55, unless your fund’s rules allow earlier.

There are different tax implications at resignation and retrenchment. On resignation, you are entitled to take your full, or a partial, benefit as a lump sum, which will be taxed according to the lump-sum withdrawal table of the South African Revenue Service (Sars).

Alternatively, you can remain in the fund, or transfer your benefit to a preservation fund, a retirement annuity fund or your new employer’s retirement fund (if your fund’s rules allow this) - no tax will be payable upon such a transfer.

If you are retrenched and receive a severance package from your employer, or decide to make a withdrawal from your benefits, the lump sum will be taxed in accordance with the Sars retirement lump-sum table.

It’s important to differentiate between your severance package and the cash lump sum you may withdraw from your provident fund. When you are retrenched, your employer may pay you a lump sum in the form of a severance benefit, and you can withdraw a cash lump sum from your provident fund. Both these lump sums are taxed according to the same retirement tax table, where the first R500 000 is tax-free. The R500 000 could, however, be reduced as a result of lump sums or severance benefits you’ve received in the past.

Tax on lump-sum benefits is calculated cumulatively over your lifetime and will be aggregated. The tax is calculated on the actual lump sum taken, not the fund value.

Retrenchment can be stressful and confusing. My advice is that you consult a qualified financial adviser to assist you with your options and decisions.


My pensioner parents often remind me to save more, wishing they had done so. I save about 10 percent of my monthly salary. How am I supposed to afford more?

Name withheld

Schalk Louw, a portfolio manager at PSG Wealth Old Oak, responds: Consider whether you could live on R1780 a month (the maximum government old-age grant for people over 60, which goes up by R20 for those over age 75), and you will realise the importance of saving as much as possible for the future.

A good starting place to assess where you could cut costs is to draw up a strict budget, to understand where your money is going, and to make sensible adjustments from there. Controlling your expenses is crucial. Saving should always be your starting point. This means you don’t save what’s left after spending, but spend what’s left after saving.

It’s great that you are saving already. My advice is to make saving a non-negotiable part of your routine. If you’ve not yet done so, set up a monthly debit order for straight after pay-day.

Make sure that if you invest in a retirement annuity, for example, you include the tax certificates with your tax submissions every year. You can deduct up to 27.5% (capped at R350 000) of the greater of your taxable income or remuneration a year this way, and you can use any tax paid back to you to top up your savings.

Avoid additional debt that may obstruct your road to financial freedom, learning from the mistakes of those who came before you. Challenge yourself by saving as much as you can to ensure a more comfortable retirement.


Most of my saving is towards long-term goals. Is this wise?

Name withheld

Jan van der Merwe, the head of actuarial and product at PSG Wealth, responds: Generally, putting most of your savings towards the long term is good, but you need to consider whether the financial products in which you are invested will meet your needs for liquidity if you want to access your money at any time.

There is a wide array of financial products, and each has its advantages and disadvantages.

While ensuring the long-term growth of the assets in your portfolio is key, so is having a portion of your investments in easily accessible investments to cover unforeseen expenses.

It is worthwhile consulting your financial adviser to ensure the products you select meet your overall needs.


I’m a tenant in a sub-let property. What happens if the other sub-lessee hasn’t taken out enough insurance for his goods - will my insurer dispute any claims?

Name withheld

Joelinda Dimond, an insurance adviser from PSG Vanderbijlpark, responds: A very important consideration here is insurable interest, where only the person suffering the financial loss or who owns the goods can insure the property. This property sounds like a commune (non-related occupants in the same property), which must be specifically noted on your insurance.

Insure your contents with a full inventory of what belongs to you and note the fact that you share with another party that has their own cover.

Your insurance company won’t dispute a claim, as only that which belongs to you will be insured and will be counted in the event of a loss and subsequent inventory and visit by a loss adjuster.

Also remember to keep proof of ownership of your items and to check your policy for security requirements (such as having an active alarm system, locked security gates, or burglar bars).


I’m in the process of getting divorced. When do I need to update my will?

Name withheld

Willie Fourie, the head of trusts and estates at PSG Wealth, responds: Changing a will after or during a divorce is often the last thing that comes to mind, so it’s good you are planning ahead.

Section 2B of the Wills Act states that you have three months to “write out” your former spouse after the date your divorce goes through. This option exists so that your ex-spouse won’t still inherit as you’d intended when you wrote your will, if you die within three months of the divorce.

The exception to this rule allows for your divorced spouse to inherit from your deceased estate within the three months, if your will specifically provides for that. However, if you fail to amend your will within the three months after the divorce, the presumption falls away. This means your divorced spouse will stand to inherit as if nothing has changed.

As you are intending to make changes before your divorce is concluded, I suggest you consult with a qualified fiduciary adviser, who can guide you through the process of updating your estate plan in terms of your new marital status and wishes. 


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