Surplus Retirement Fund Payments and the tax implications

There has been a lot of activity regarding surplus fund payments in recent months, the Mitchell Cotts pension fund being one ofe the funds whose redistribution is almost complete.

There are currently another seven Pension Funds whose funds were stripped in the early parts of 1990 that will begin distributing the surplus to their members totaling close to R120 million and affecting well over 15 000 employees and former employees.

The following Retirement Funds are part of the current redistribution of surpluses according to the FSB:

Lucus SA Pension Fund
Prestolite Pension Fund
Picbel Groep-voorsorgfonds
Sable Industries Pension Fund
Datakor Group Pension Fund
Datakor Group Retirement Fund
Cortech Pension Fund

Due to the time involved in settling these cases, it is important to understand what the tax implications are from receiving your surplus payments and the following are the rules of thumb.

1. If you are no longer an active member of the fund.

Your surplus payment should be exempt from tax according to a directive by SARS in 2009.

Any lump sum benefit received by or accrued to a person after his or her retirement or death, withdrawal or resignation from any pension fund, pension or preservation fund will not constitute gross income of that person.

This would include resignation from a provident fund, provident preservation fund or retirement annuity fund and the winding up of any such fund.

2. If you are an active member of the fund at the time of receiving a surplus payment.

Your payment would form part of your income and it would be best to speak to a financial consultant in this event. The tax efficient manner in which you deal with your surplus payment could make a significant difference to your retirement funding portfolio.