Upon a superficial study of the definitions of ‘pension fund’ and ‘pension preservation fund’ one may be forgiven for reaching the quick conclusion that these definitions are the same – not so. There is a subtle but important difference that we draw readers’ attention to and that fund members may be able to exploit for their best benefit.

The definition of ‘preservation fund’ determines in sub-section (b)(ii)(cc) that  if in the case of a pension preservation fund, “(cc) a person dies after he or she has become entitled to an annuity, no further benefit other than an annuity or annuities shall be payable to such person’s spouse, children, dependants or nominees;”. There is no equivalent provision in the definition of ‘pension fund’.

The relevance of this subtle difference is that when a pensioner passes away who retired in his former or another approved pension fund, benefits to his/her spouse, children, dependants or nominees are not restricted by the Income Tax Act to being an annuity or annuities, as is the case with a pension preservation fund. Depending on the rules of the pension fund, the beneficiaries could be entitled to a cash lump sum and/or the commutation of 1/3rd of any annuity payable to the beneficiary, which is clearly beneficial from the tax point of view. (Refer to the afore going article on ‘Death benefits and the rediscovery of PN 5 of 2003’.)

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.