Prospective pensioners were warned through a recent judgment by the Financial Services Tribunal to carefully read retirement paperwork because a mistake could be costly, as a Pretoria woman found out when she lost R94,000 in an irreversible tax deduction.
Susan White was a member of a provident preservation fund and in January last year she elected at the age of 62 to withdraw her fund benefit. The fund, however, processed the claim as a withdrawal benefit, which resulted in a massive tax deduction.
She explained that the fund provided her with a withdrawal claim form as opposed to a retirement benefit claim form. She accordingly completed the form which had been provided to her and was paid a withdrawal benefit as opposed to a retirement benefit.
She argued that the fund incorrectly applied for a tax directive in respect of the payment of a withdrawal benefit instead of what she had requested, being a retirement benefit.
As a result, she suffered a financial loss of R 94,050,00 in tax which was levied against the withdrawal benefit. According to the fund, an application for a tax directive from Sars can only be made after an election by the member. It said that the tax directive cannot be reversed as requested by White. As she had indicated that her retirement age was 65, it could not have known that White now decided to retire at 62.
It explained that once that tax directive was issued by Sars, the preservation fund was obliged to deduct the amount of tax as stated in the directive and pay that amount to Sars prior to paying the member her benefit, the tribunal was told.
The Pension Fund Adjudicator found that the fund had acted lawfully in terms of its rules, together with White’s instructions at the time, in paying her withdrawal benefit. The adjudicator also found that there was no basis by which her complaint concerning the tax amount deducted from her withdrawal benefit had any merit and accordingly it was dismissed.
When the matter was heard before the tribunal, it was told that White had received professional financial advice regarding her retirement. She was told that she would be entitled to withdraw 100% of the fund value as a cash amount with the first R 550,000,00 being tax-free. Hence, she would only be liable for tax on the remaining portion of approximately R35,000.
Meanwhile, in a letter provided to the tribunal, the financial advisors said that they had no prior experience in dealing with White’s preservation fund and had never used any of its forms. It was thus confused by the use of the word “withdrawal” when requesting the necessary form for her to pay her benefits.
It said: “In hindsight, one can see the confusion on both sides, but the eventual outcome was never intended for the client.”
The financial advisors, meanwhile, reimbursed the R94,000 tax mistake, but wanted the tribunal to order the fund to pay a portion of the money, which the tribunal refused to do.
Retired Judge Dennis Davis, who headed the tribunal, meanwhile said this case highlights the human cost of administrative errors.
“Members must ensure that the forms they sign, align with their intentions. Once Sars issues a directive, it is binding and cannot be reversed,” he warned.
