In a recent determination by the Pension Funds Adjudicator (the PFA), the taxpayer was a member of a pension fund. Upon resignation he instructed his financial adviser that he wants R500,000 in cash from his withdrawal benefit, while the rest of the capital had to be preserved. However, he indicated that this should only be the case in the absence of adverse tax implications. The fund received a signed instruction from the member to this effect and duly applied for and received a tax directive from SARS. Upon realising what the tax implications would be, the member accused the fund and his previous employer of negligence in not pointing out the adverse tax consequences to him.
The PFA ruled that once the election was signed the fund or the employer had no duty to advise the member, and once the tax directive had been issued it could not be altered unless an error occurred. The fund did advise members that their elections could have tax consequences. It was therefore the member’s responsibility to obtain tax advice.
This determination may be of importance to executors and trustees in those cases where the deceased estate or a trust will receive the retirement benefits of a deceased member.
Click here for the determination.