What is the best way forward with my Sasol pension?

Can you please assist me in choosing the best way forward with my Sasol pension fund? I have many options.

Dear reader, thank you for this question as this is the part that I really enjoy about the financial planning environment. I will do my best to guide you in a direction with the information available. I am also in the property development space, more commercial than residential and will use my own intuition in making recommendations.

Reader: Here is some background information

On the personal side:

• I have been working for Sasol since 1985 (33 years)
• I was married in 1985, but it lasted less than three years
• I remarried in 2016
• I want to take early retirement at age 55 in September this year
• I own two properties, both of which are basically fully paid up
• My wife also has two properties that are fully paid up which she will be renting out
• My wife hardly has any pension fund.

On the business side:

• In 1996, I started Teksa Transport as a sideline business
• In 2012, I sold the business to a trust I had set up
• For years I have been financially transferring already taxed money to assist Teksa Transport to grow to what it is today; we do not do transport anymore but have seven industrial properties that we lease out
• All these properties are basically fully paid up
• Last year, Sars introduced the law regarding interest charged on previously “interest-free loans”
• Currently, I am draining the income from the business to reduce my loan account.

What now?

• Should I leave my pension with Sasol? And if I do, should I opt for the Guaranteed fund or the Living annuity?

My understanding is that the Sasol pension fund outperformed the market in the past due to great asset allocations made by the trustees. I presume you have been part of this pension fund for the last 30-plus years and did qualify for an incentive. If this is the case, I would leave it with Sasol in a living annuity (for various reasons). The drawdown percentage that you should take is debatable depending on the cash flow required each month. A minimum of 2.5% and a maximum of 17.50% can be withdrawn from the fund value. You can adjust this percentage each year.

• Must I take my pension to another annuity fund? If I decide on this option, will I have control over the investment portfolio?

I presume you are talking about moving your pension to a pension preservation fund. You may transfer your pension to another annuity fund, but this should be discussed in more detail. You will have control to determine your asset allocation and funds chosen. If you do move it, it could even be possible to invest in a direct share portfolio to a certain extent.

• With the current situation in the country, should I rather resign from Sasol and have my pension paid out, and add another ±R3 million, to take out a total of R10 million to another currency?

I would not recommend this due to the heavy tax that will be due on the resignation benefit, which could mean that you would need to add much more than originally thought. You also have certain types of protection through the laws of the Pension Fund Act, such as no estate duty payable and protection from creditors.

• Should I not declare that I want to go on pension now and leave my money with Sasol pension fund until age 65, then only buy an annuity as a pension?

If your cash flow permits, it might be a good idea to leave the capital in the Sasol pension fund. As stated earlier, you can transfer to another annuity fund (pension preservation).

• Should I have one-third paid out and add some more funds to obtain citizenship in another country, but leave my other properties and investments in SA?

I would recommend taking a portion, but I would have to do a tax calculation to establish the optimum point. If your marginal tax rate is 45%, the lump sum taken could be close to a third. It will all depend on your marginal tax rate. Citizenship will not necessarily bring tax relief, but is a discussion on its own. It depends on the country you want to move to and other factors. All options come at a price, and will not necessarily equal your present standard of living.

Advisor recommendations:

• Gear your property and pay back the trust loan. Remember that the interest paid for gearing against your property is tax-deductible for your company.
• Use your R10 million allowance to reduce political risk. The option of setting up an offshore trust in Mauritius, for example, is an option – and although you might think this would create a loan account in your estate, there are ways to get this immediately reduced through certain offshore structures/policies.
• You didn’t mention if any children will need to be discussed, and will the capital at hand and cash flow be enough to provide for your wife if something happens to you?
• An exercise needs to be done to check if you have sufficient liquidity in your estate.
• Will the trustees still manage the commercial properties through Teksa Transport, or would it have to be sold?
• A calculation needs to be done on the returns of the four properties. Although the cash flow might be helpful, the return in a different vehicle might be better. Opportunity cost needs to be weighed up.
• Narrow the loan account down to at least R1,25 million and donate the interest that needs to be paid each year. Current interest is at 8%, and you have the R100 000 donation exemption each year.
• You didn’t mention other assets (cash in the bank, direct investments and so on), but it seems exposure to property could be too high when looking at the total asset allocation in your portfolio. Apart from the concentrated risk given your asset allocation, additional political risk and the land distribution issue makes it even more risky in such a concentrated portfolio.
• The key to your portfolio is asset allocation both domestically and offshore.
• Try to emigrate financially.

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