This question is quite intricate, particularly in view of the fact that retirement annuity funds may only be offered by insurance companies even though a retirement annuity fund is a pension fund and subject to the Pension Funds Act. Because it is offered by insurance companies as an insurance product, both the Long-term Insurance Act and the Pension Funds Act apply to retirement annuity funds.

The Long-term Insurance Act does not specifically prohibit the transfer of capital accumulated in an individual policy to a pension fund, but this would have to be provided for by the rules/policy of the product. The Act does prohibit the transfer of insurance business or a certain type of insurance business to another entity without approval by the High Court.

The Pension Funds Act similarly does not prohibit the transfer of capital accumulated in an individual pension fund policy to another entity, but this would have to be in terms of the rules of the pension fund. The Pension Funds Act  makes provision for transferring business to or from another entity, which does not have to be a pension fund, in terms of section 14.  Where individual transfers are allowed in terms of the rules/policy of the product, these are to be considered a benefit paid by the product.

The Income Tax Act defines how benefits are to be taxed and prescribes what type of benefits an approved fund (retirement annuity fund, pension fund, provident fund and preservation fund) may offer. In the case of pension fund benefits, the Act allows for benefits to be transferred tax-free from any approved fund, other than a retirement annuity fund, to any other approved fund including a retirement annuity fund. The definition of preservation fund prohibits a transfer of member’s interest between two preservation funds. The definition of retirement annuity fund allows for members’ interest to be transferred between approved retirement annuity funds. Such a transfer is not a benefit and is not taxed as the only benefit a retirement annuity may pay is a life annuity of which up to one-third may be commuted.

A transfer from a retirement annuity fund prior to retirement, is typically prohibited in terms of the product policy as the insurer is using actuarial calculations to determine premiums, guarantees and benefits that are dependent on fixed pre-determined parameters that cannot be made subject to member discretion. At retirement the policy matures (or terminates) and then typically allows the transfer of a member’s interest to another retirement annuity fund. This would not constitute a benefit and is therefore not subject to taxation.

To accommodate above objective of allowing members of a retirement annuity to transfer their interest to another approved fund upon retirement is thus prevented by the definition of ‘retirement annuity fund’ in the Income Tax Act which means that this Act would have to be amended. To accommodate this objective prior to retirement, the product policy would have to be amended which should be possible for investment linked products without any risk benefits or other guarantees but is not likely be considered by insurers for any other type of product.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.