An application will have to be made, but because no risk or underwriting is involved, the definition of ‘permanently disabled’ is fairly loose in such cases. Picture: Shutterstock
Normally you cannot access money invested in a retirement annuity (RA) until you turn 55. As these are retirement savings, the intention is that they should be held until you reach retirement age.
There are, however, three exceptions.
The first is if you are no longer contributing to the fund and you have less than R7 000 saved. Then you are entitled to withdraw the full amount.
The second is if you financially emigrate. The government will then allow you to withdraw everything in your RA and take the money with you. You will however be taxed at the normal rates for a withdrawal, as per the table below:
|Taxable income||Rate of tax|
|R0 – R25 000||0%|
|R25 001 – R660 000||18% of taxable income above R25 000|
|R660 001 – R990 000||R114 300 + 27% of taxable income above R660 000|
|R990 001 and above||R203 400 + 36% of taxable income above R990 000|
Thirdly, and perhaps least well known, is that you can access your RA if you are permanently disabled. This is effectively treated as an early retirement.
That means you can take the full amount if you have less than R247 500 in the fund. Otherwise you can take up to one third as a lump sum, taxed at the below rates, and you must use the rest to purchase an annuity.
|Taxable income||Rate of tax|
|R0 – R500 000||0%|
|R500 001 – R700 000||18% of taxable income above R500 000|
|R700 001 – R1 050 000||R36 000 + 27% of taxable income above R700 000|
|R1 050 001 and above||R130 500 + 36% of taxable income above R1 050 000|
Making an application
What is important for investors to appreciate is that the threshold for what is considered a ‘permanent disability’ in this case is not necessarily the same as the threshold for an insurance claim.
“As there is no risk product attached and therefore no underwriting, the definition of ‘permanently disabled’ is fairly loose,” explains Marina Higginson, a director at GFP Financial Planning. “What is required is for the member to make an application to the board of trustees, provide medical evidence, and the board will then decide whether or not to approve it.”
Boards of trustees will generally rely heavily on the medical opinion that comes with the application. Each fund may handle this slightly differently, but there will be broad similarities.
Allan Gray actuarial analyst Shaun Duddy explains that members of the Allan Gray RA would need their attending medical practitioner to provide details in three areas.
“Firstly, they must provide a reasonable level of detail on the condition or conditions that the member is suffering from,” Duddy says. “Next, they must state what, in their professional view, are the chances of that member recovering from that condition. Lastly, given the combination of the condition that they face and the likelihood of recovery, do they believe that the person is, in the traditional definition, permanently disabled either physically or from a cognitive point of view.”
This will then be evaluated by the board of trustees.
“The ultimate decision on whether or not the member is deemed permanently disabled sits with the trustees of the relevant fund,” says Duddy. “That decision is however heavily influenced by the professional opinion of the medical practitioner.”
Higginson says that there may however be instances where the board cannot make a decision based on the initial submission alone.
“If the board feels that it is not able to arrive at a conclusion, they can ask for further medical evidence, particularly relating to whether this person is permanently disabled,” she says. “As the board is not expected to have medical knowledge, it may also not feel competent enough to decide on the matter itself. They could then call in an expert to help them with the assessment.”
What constitutes permanent disability is also not necessarily aligned with what you might insure yourself against. Insurance policies will generally differentiate between being disabled for your own occupation, your own or a similar occupation, or any occupation. These categories do not apply in this decision.
“We’re defining disability in general terms of being disabled, not relative to a particular occupation, or any occupation,” Duddy explains. “So if someone was to lose both their legs in a car accident, that member is permanently disabled in the traditional sense, even though in the months or years that follow they may be able to work if they find an occupation that doesn’t require them to use their legs.
“So the definition differs quite significantly from underwritten disability insurance that members may also be exposed to,” he adds. “You could have situations where your retirement fund is willing to accept early retirement based on disability, even though you don’t qualify under your insurance policy.”