A pension fund is a fund set up by an employer for the benefits of the employees. The object of this fund is to provide annuities or pensions for the employees upon their retirement, or to provide lump sum benefits for the dependants of such members upon death of the members. The largest 300 pension funds collectively hold about $6 trillion in assets. On retirement a maximum of 1/3rd can be taken as a lump sum - the balance must provide a life-long pension, thus reinvested in a regulation 28 fund. If the total value of the benefit does not exceed R75 000 the full benefit can be taken as a lump sum. The tax deduction for employer allowed by SARS is generally 20% of the total remuneration which accrues to the employee in respect of his employment which SARS considers to be fair and reasonable.
An Umbrella pension or provident fund is a single fund, established and managed by a retirement fund administrator, to which any employer or group of employers can apply for the membership as a participating employer. One advantage of an umbrella fund is that the employer joins a fund in which is already registered and approved and has an established board of trustees. An umbrella fund is a collective investment scheme that exists as a single legal entity but has several distinct sub- funds which, in effect, are traded as individual investment funds.
A provident Fund is a fund set up by an employer for the benefits of its employees. The object of this fund is to provide a cash lump sum benefit for the members(employees) upon their retirement, or to provide lump sum benefits for the dependants of such members upon death of the members. A big difference between a provident fund and a pension fund besides the cash lump sum on retirement is that a provident fund`s member contributions is not tax deductible.
Retirement Annuity Fund
A retirement annuity fund is set up by an administrator or insurer for the benefit of individual investors. In layman`s terms it is a pension/retirement plan for self employed people or for a employee who`s company doesn`t have a pension or provident fund in place. If one is a member of a retirement annuity fund, one cannot retire before the age of 55. Contributions are tax deductible for up to 15% of Non-retirement fund income(which in most cases will be your gross salary).
A preservation fund is a pension preservation fund or preservation fund to which a member`s paid-up pension or provident fund respectively can be transferred in certain instances. It not only preserves the member`s accrued tax status, but generally also allows the member with one withdrawal prior to retirement. The transfer of benefits from a pension fund to a preservation pension fund and from a provident fund to a preservation provident fund will not attract tax (paragraph 6 of the Second schedule to the Income Tax Act). No contributions can be made to a preservation fund.