During 2021, Momentum Corporate’s multi-employer umbrella fund, FundsAtWork, received a number of requests from participating employers to allow members to resign “artificially” to get access to their retirement savings.
Employers then reinstate the employee once they’ve withdrawn their savings. This trend is not unique to FundsAtWork and is likely to be evident across other retirement funds.
So, is “artificially resigning” from your retirement fund to get your retirement savings a good idea?
Shameer Chothia, Senior Consultant at Momentum Corporate Advice and Administration, says, “Definitely not. These “artificial resignations” are not legal and could have serious implications for your retirement fund, your employer and you. The tax man (SARS) views this type of transaction as a serious violation of the Income Tax Act.
Should SARS suspect you left your retirement fund in this way, they will investigate further and if they find this is the case, they could cancel the income approval of the retirement fund.
This would mean, among other things, contributions to the retirement fund will no longer be tax-deductible and investments and their growth would be taxed, which would make it very difficult for your retirement fund to survive financially.
To prevent this, your retirement fund membership would need to be fully reinstated, as if the “artificial resignation” never occurred.
This means you will have to repay the withdrawal benefit paid to you in full, which will put you under even more financial pressure.”
Chothia concludes, “While we understand just how tough it’s been to keep head above water, the answer is certainly not to do something illegal like “artificially” resigning from your retirement fund. Rather talk to your retirement fund’s benefit counsellors, financial coaches or a financial adviser to understand your benefits better and draw up a realistic budget that will help you live within your means and get out of the debt trap.”
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