Question:
I have a pension of about R800 000 that is split between a pension fund and a company administered provident fund.

If I get retrenched or resign would I be able to draw from it to fund a business? I know you would probably advise against it, but I need to know whether one could actually draw on these funds.

Answer:
More and more cash strapped individuals are turning to their retirement funding in an attempt to ease the financial pressure of rising interest rates. Many people also use their retirement funds to start up a business.

Depending on the type of retirement fund an individual has, they may be prohibited from removing money from the fund until the age of 55. If an individual has a company retirement plan the fund rules may prohibit the removal of funds, even if the employee leaves the company. He or she may be required to reinvest the money in a preservation plan if they resign.

If someone is successful in accessing their retirement funding there is a good chance that they will have to pay tax and penalties on the early withdrawal.

They will be taxed at their full marginal rate meaning that if an individual withdraws R300 000 they will pay R114 000 over to SARS. This is a huge dent in a retirement programme and this action should be avoided at all costs.

You would need to contact your human resources department to see what the rules of the fund are. If the fund states that the money cannot be accessed until retirement or at a specified age then you will not be able to get the money out. The laws are pretty much set in stone.