Q: Please, if you can advise, which is a better preservation fund out of the following: Sanlam, Alexander Forbes, 10X or Allan Gray — S Magagula via e-mail. 

A: Ian Beere CA (SA) CFP®, MD & wealth manager at Netto Invest responds:

There are no wrong or right answers to this, but I hope to provide some understanding.

When transferring your pension or provident credit to a preservation fund, there are three things to determine.

• Who am I happy with to be my administrator?

The administrator is the responsible custodian of your money and is accountable to the Financial Sector Conduct Authority (FCSA) for its safety, investing it in the funds you select, sending you regular reports, attend to tax and other compliance.

• What is my investment objective?

If you are close to retirement your objectives may be different to those of a young professional. 

A soon-to-be retiree may be more focused on capital preservation than on high growth and will use a defensive investment with a lower risk-return profile. A young investor is likely to want the best growth over a long-time frame with more risk, and thus more return.

• Who do I trust to manage my money?

Now that you’ve established your investment objective, you must determine who (which asset manager) will manage this investment for you. It is important to note that the administrator will have access to a number of different asset managers. Each asset manager will in turn have a fund for each likely objective. Some investments use a passive approach and are not actively managed which makes them cheaper.

So who to choose?

Sanlam, Alexander Forbes and Allan Gray provide administration and access to a wide range of managers and investments, while 10X primarily offers passive index investments, handling both administration and investment management.

You should also have an option to leave your money with your current retirement fund in the default investment portfolio.

All of your options are safe and regulated by the FCSA. To make an appropriate choice, it may be worth investing in good, professional advice.

Q: Is it possible to quit my preservation fund or move the money to a different fund or as a savings to gain access to the funds? I withdrew a third when I resigned and put the rest in a preservation fund. I would now like to withdraw some of my money, but I am told I can’t — Jonathan, via e-mail.

A: Craig Gradidge, CFP® and investment and retirement planning specialist at Gradidge-Mahura Investments, responds.  

There are two types of preservation funds; pension preservation and provident preservation funds. They are defined in the Income Tax Act and are also governed by Practice Note 1/2012, and the rules of the particular preservation fund.

Practice Note 1/2012 states: “A member exiting their former occupational fund can access a portion of their benefit in cash before transferring to the pension preservation fund or provident preservation fund. Such a transfer is tax-neutral and does not preclude the member from accessing a further once-off withdrawal benefit in the pension preservation fund or provident preservation fund.”

From this it would seem that you should be able to access money from your preservation fund. However, the withdrawal may have been processed from the preservation fund and not from your occupational fund (your company retirement fund). This could explain why you are unable to access funds now.

Alternatively, the rules of the preservation fund you’re invested in may not allow you to take another withdrawal if you have already withdrawn from the occupational fund.

You may move your preservation fund to another product provider, but it will have to remain in a preservation fund wrapper (for example you could move from a Momentum preservation fund to a Stanlib preservation fund). This you can do via what is known as a Section 14 (of the Pension Funds Act) transfer. However, this will still not enable you to access any funds from the new preservation product provider.

You will only be able to make another withdrawal — maximum one-third if it’s a pension preservation, or all if it’s a provident preservation fund — from age 55 when you can retire out of the fund. This withdrawal is subject to tax using the retirement tax tables and will be aggregated together with your first withdrawal when calculating your tax liability.

There are a fair number of variables at play when you’re making decisions around retirement products and planning in general. These include tax, income planning and structuring, portfolio structuring, cost management and legislation. You will get value from consulting an experienced, qualified and independent financial adviser, preferably one who carries the CFP® designation.

* Send your personal finance questions to Money@tisoblackstar.co.za