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GEPF

The Government Employees Pension Fund (GEPF) is a defined benefit fund that manages pensions and related benefits on behalf of government employees in South Africa.


Process when resigning or discharged

When resigning - Only Options Available:

  • 100% Cash withdrawal
  • 100% Transfer


Can Only Transfer Into:

  • Pension Preservation Fund OR
  • Retirement Annuity


What The Employee will Lose:

  • All employee benefits
  • No continuation options available


Process when discharged (at no fault of employee)

Only when discharged because of the following:

  • Medical reasons
  • Injury on duty
  • Incapacity
  • Job restructuring


The benefit will depend on whether:

  • Pensionable service more than 10 years OR
  • Pensionable service less than 10 years 

Process when discharged (at no fault of employee) service MORE than 10 years

The member will get the following:

  • Once-Off lump sum (Gratuity)
  • Monthly pension (Annuity) - Until death
  • Medical aid subsidy (Check Medical aid) - Until death

 

At member’s death:

  • Spouse receives annuity payment
  • Spouse receives medical aid subsidy
  • Payment to beneficiaries (Check Death section)
  • The member will be taken as if they’ve retired in the fund

 

Process when discharged (at no fault of employee) service LESS than 10 years

The member will ONLY get the following:

  • Once-Off lump sum (Gratuity)

 

Process when discharged (due to fault of employee)

The discharged because of the following:

- Misconduct

- Illness caused by their own doing

  • The number of pensionable service does not change anything
  • This will be treated as a normal resignation

 

The member only has the following options:

  • 100% Cash withdrawal
  • 100% Transfer to a Retirement Annuity
  • 100% Transfer to a Pension Preservation Fund

Retirement

If you retire in the fund:

  • You cannot transfer the pensionable benefit out of the fund
  • GEPF fund rules don’t allow this

 

The benefits depend on the following:

  • Pensionable service more than 10 years OR
  • Pensionable service less than 10 years 


Retirement – Service for MORE than 10 years

The member will get the following:

  • Once-Off lump sum (Gratuity)
  • Monthly pension (Annuity) - Until death - Until death
  • Medical aid subsidy (Check Medical aid) - Until death - Until death

 

At member’s death:

  • Spouse annuity payment
  • Spouse medical aid subsidy
  • Payment to beneficiaries (Check Death section)


Medical aid subsidy - Service must be more than 15 years:

Member can only get it in the following:

  • Member must have been the main member on the medical aid
  • For an unbroken period of 12 months
  • The benefit is until death

 

Medical aid subsidy - Service less than 15 years :

  • Member will get once-off medical benefit
  • The amount will depend on the following:

- Pensionable service less than 15 years

- Pensionable service less than 10 years

 

Medical aid subsidy at main member’s death:

  • Member’s spouse will get this benefit - Value equal to what the main member was gettingValue equal to what the main member was getting
  • The spouse will get the benefit until death
  • Children are not covered

Retirement – Service for LESS than 10 years

The member will get the following:

  • Once-Off lump sum (Gratuity)
  • At member’s death: Payment to beneficiaries (Check Death section)

 

Retire or Resign

  • Does the member have a spouse? If Yes = Does the spouse have retirement funds OR other sources of income
  • When they Die - Do they want to transfer the remaining retirement fund money to their beneficiaries?
  • Does the member have other sources of income at retirement?

 

Example 1:

Linda is a widow

Worked for the government for 35 years

Has 4 rental properties

Has unit trusts worth R800 000

She wants her children & grandchildren to inherit these

 

Options for Linda:

1. Retire in the fund:

Benefits:

  • Lump-sum gratuity
  • Monthly Pension until death
  • Medical aid subsidy until death
  • She doesn’t have a spouse – Therefore no spousal benefits


Downside:

  • Her children & grandchildren will not get anything from GEPF on her death


2. Resign from the fund:

This means she can transfer to and approved preservation fund OR Retirement annuity, THEREAFTER

Retire from the retirement fund & purchase a Living annuity


Benefits:

  • She can leave a legacy for her children
  • Option to vary  her draw-down annually


Downside:

  • She will lose a guaranteed life-time monthly pension payment
  • She will lose the life-time medical aid subsidy
  • She’s widowed so the spousal benefit doesn’t count
  • She might out-live her Living annuity


Note: If you want a Life annuity then you would have to prove why that vs. the GEPF retirement option

Example 2:

Sipho is married

Worked for the government for 35 years

Sipho struggles with his health

His spouse is unemployed

They don’t have any retirement funds or investment assets


Options for Sipho: They the same as Linda’s


1. Retire in the fund:

Benefits:

  • Lump-sum gratuity
  • Monthly Pension until death
  • Medical aid subsidy until death
  • Sipho is married therefore the spouse will spousal benefits at Sipho’s death


Downside:

  • On both Sipho’s and his spouse’s death:
  • Their children will inherit nothing from the GEPF


Note: If you want a Life annuity then you would have to prove why that vs. the GEPF retirement option


2. Resign from the fund:
This means he can transfer to and approved preservation fund OR Retirement annuity, THEREAFTER retire from the retirement fund & purchase a Living annuity

Benefits:
  • He can leave a legacy for his children
  • Option to vary his draw-down annually

Down-Side:

  • He will lose a guaranteed life-time monthly pension payment
  • He will lose the life-time medical aid subsidy
  • His spouse will lose the spousal benefits
  • He might out-live his Living annuity

Key consideration:

  • Will they have money to handle their medical costs?
  • Given Sipho’s ailing health
  • The spouse is unemployed, what will the quality of life be like for the surviving spouse after Sipho’s death?


Note: If you want a Life annuity then you would have to prove why that vs. the GEPF retirement option     

Impact of Divorce and Death


Divorce:

Depending on the divorce order - The GEPF to the following for the non-member:

  • 100% cash lump-sum payment
  • Transfer to an approved retirement fund


Death - The benefits will depend on the following:

Member dies within 5 years of retirement:

  • Spouse will receive monthly annuity
  • 50 % or 75% of what the deceased member got
  • Until death
  • Even if they re-marry
  • Dependants will receive a calculated lump-sum

 

Member dies more than 5 years after retirement:

  • Spouse will receive monthly annuity:

•50 % or 75% of what the deceased member got

•The 50% or 75% would have been selected by the main member at retirement

•Until death

•Even if they re-marry

  • Dependants will receive nothing

Definition of spouse or life partner


The GEPF requires the following to prove Spouse/ Life partner status:

  • Copy of marriage certificated from Department of home affairs OR
  • Customary union certificate OR
  • Lobola letter OR
  • Civil union certificate OR
  • A certificate confirming your Asiatic (e.g. Hindu or Muslim) OR
  • A certificate confirming marriage in terms of any other religion OR

 

If there’s more than 1 surviving Spouse

  • The spouse’s pension benefit will be divided equally among them

 

Transfers only allowed at:

  • Resignation
  • When Discharged - Because of misconduct
  • Divorce Order - For the non-member
  • SARS outstanding taxes

Tax

Background

  • Lump-sum benefits paid by public sector funds were only taxed with effect 1 March 1998
  • Benefits pre 1 March 1998 retained the tax-free status


The taxable portionof the benefit is determined using a formula (previously referred to as Formula C, now Par. 2A formula)

A = B/ C x D

  • A – Taxable amount
  • B – Total number of years of service from 1 March 1998
  • C – Total number of years in service (Pre & Post 1 Mar 1998)
  • D – Lump-sum benefit payable

 

On Retirement:

The tax formula is used only on the lump-sum the member takes. Not on:

  • Total benefit
  • The portion used to purchase the annuity

 

On Resignation OR Retrenchment:

The formula is applied on the full fund benefit. Irrespective of:

  • The benefit is taken as a lump sum OR
  • Transferred into an approved fund

Note:

  • Resignation on the basis of Ill-health or Injury on duty is treated as a retirement.
  • Resignation on the basis of Ill-health or Injury on duty is treated as a retirement.


A transfer to a Preservation Fund OR Retirement Annuity followed by a Withdrawal OR Retirement from the receiving fund:

  • The Formula will be on Full benefit amount (The original amount from the GEPF)
  • Once the taxable portion is calculated you will use the Withdrawal/ Retirement/ Retrenchment tax table to determine the tax payable.

 

Example 1:

William Resigns from GEPF

Transfers his benefit into a Pension Preservation/ Retirement Fund

He retires from the fund at age 65

Takes 1/3 Cash

Remainder purchases an annuity

 

Taxable amount calculation:

A = B/ C x D

  • B – Total number of years of service from 1 March 1998 = 22 years
  • C – Total number of years in service (Pre & Post 1 Mar 1998) = 33 years
  • D – Lump-sum benefit payable = R 9 000 000

 

Therefore A (taxable portion of the benefit):

= 22/ 33 x 9 000 000

= R 6 0000

Tax on the taxable portion: Use the “normal” resignation tax table


Example 2:

Ruth Retires from GEPF

She retires from the fund at age 65

Takes 1/3 Cash

Remainder purchases an annuity

 

Taxable amount calculation:

A = B/ C x D

  • B – Total number of years of service from 1 March 1998 = 22 years
  • C – Total number of years in service (Pre & Post 1 Mar 1998) = 33 years
  • D – Lump-sum benefit payable = R 3 000 000(1/3 cash withdrawal)

 

Therefore A (Taxable portion of the benefit):

 = 22/ 33 x 3 000 000

 = R 2 000 0000

Tax on the taxable portion: Use the “normal” retirement tax table

 

Note:

Lump-sum benefits are aggregated:

The following lump-sums previously received or accrued will be taken into account:

  • Retirement benefits – Received or accrued on/ after 1 October 2007
  • Withdrawal benefits – Received or accrued on/ after 1 March 2009
  • Severance benefits – Received or accrued on/ after 1 March 2011

Be careful when you want to give the client accurate tax estimates

 

Forms needed to start a transfer:

  • A completed Z1525
  • Certified copy of client’s ID/ passport
  • A completed Z864
  • A completed resignation/ discharge choice form
  • If married, copy of marriage certificate
  • If there’s children, certified copies of the birth certificates
  • These must be submitted to HR

Note: Not every Government employee belongs to the GEPF