The Pension Funds Act protects your retirement savings from being reduced, ceded, transferred or attached by creditors in all but a few limited cases.
This means you can’t lose your savings when you are in debt unless you withdraw the money.
While you are still a member, tThere are only three instances when all or some of your savings can be used to pay what you owe:
Deductions for active members
Home loans
If you have a home loan granted by your fund or by a bank using your retirement fund savings as security for the loan, and you default on that loan, it is possible your savings can be used to pay what you owe.
Before this can happen, the trustees of your fund need to be sure that no other arrangements can be made to pay off the debt.
If your savings are used to settle the loan, the amount used will be regarded as a withdrawal and you will be liable for tax on any withdrawal that takes you over the R25 000 you are entitled to withdraw tax free from retirement funds over your life time.
Divorce orders
If you divorce and a portion of your retirement savings is awarded to a former spouse in terms of a valid divorce order, this amount can also be deducted from your retirement savings.
Since the clean-break principle was introduced on September 13 2007, former spouses have been able to claim their portion of a pension interest immediately on divorce.
Since November 2008, this has also applied to those divorced before September 13, 2007. Before these dates, the portion of your fund awarded to your former spouse only become due if you die, retire or withdraw your benefit from the fund.
Maintenance orders
If you owe money for the maintenance of your child/children and your former spouse or the child’s guardian obtains an order from the Maintenance Court for maintenance to be recovered from your property, your fund can deduct the amount you owe from your savings.
Your former spouse or the child/children’s caregiver must have obtained a maintenance order to which you have subsequently failed to adhere. Your former spouse or caregiver must have gone back to court to enforce the order. The court can then issue an order to your employer to deduct the maintenance from your salary or to attach money in your fund.
Deductions when you leave a fund
If you resign, are dismissed or are retrenched and you are entitled to a withdrawal benefit or you preserve in fund or transfer to a new fund, there are a few very clearly defined instances where the fund is entitled to deduct money from your savings.
The deductions that can be made are defined in the Pension Funds Act. Any other deductions are unlawful.
The deductions are for:
Tax owed to SARS
If you withdraw your savings and do not preserve it in your fund, a preservation fund or retirement annuity, you may be liable for tax.
Tax is due on any amount withdrawn that exceeds the R25 000 tax-free limit you are allowed for any withdrawals from any retirement fund over your life time. If you are retrenched, you are entitled to withdraw R500 000 tax free reduced by any amount you have withdrawn previously.
Your fund will tell the South African Revenue Service how much you plan to withdraw and it will issue a directive stating how much tax must be deducted before you are paid out.
SARS will also check if you have outstanding tax or penalties and can instruct your retirement fund’s administrator to deduct any tax or penalties owing from any lump sum you withdraw from your fund or any annuity payments from your fund.
Housing loans
If you leave an employer when you have a housing loan granted by your fund, or your employer or a bank and you have agreed to your retirement savings being the security, you need to settle the loan by taking a new loan, or the outstanding amount can be deducted from your savings.
The rules of the fund must provide for the deduction.
Divorce orders
If you divorced before the clean-break principle for retirement funds was introduced on September 13, 2007, and a portion of your fund was awarded to your former spouse, the portion awarded will become due and must be deducted if you die or if you retire, or if you resign and withdraw from the fund.
Maintenance orders
Maintenance can be deducted from your savings if there is a valid order from the Maintenance Court for maintenance to be recovered from your property.
If you retire, resign or are retrenched, and your former spouse or the guardian of your children is worried you may squander the money in your fund or hide it, she/he can ask the court to interdict the fund from paying the money until the maintenance inquiry is finalised.
Employer losses
If your employer has suffered losses as a result of your dishonesty or misconduct, or because you committed theft or fraud, it may be able to deduct these losses from your pension benefit.
Any misconduct must be that which involved dishonesty and an intention to defraud, and not just negligence, a High Court case has confirmed.
A fund may only deduct amounts for damages suffered by your employer if your employer:
If your employer gets a judgment against you, it can include the legal costs of obtaining that judgment.
If more than one of these deductions applies in your case, the tax deductions must be done first and the maintenance orders must be deducted before any divorce orders.
Funds may also deduct amounts you agree it can deduct from any pension paid to you to pay for medical scheme contributions or insurance.
