How will the proposed preservation fund structure affect me?

Justin,

The laws around compulsory preservation have not yet come into effect, and are still under discussion.

As proposed, your vested right will fall under the old rules, but will possibly be relaxed. You can withdraw your vested right in full, also after P-Day; it is proposed however that instead of limiting to you to just one (full or partial) withdrawal before retirement (as is the case now), you will be allowed to access all this money by way of multiple withdrawals, if you wish.

The initial deposit is the amount transferred to the preservation fund net of any vested right. Note that you will also accumulate vested rights in your current retirement (pension or provident) fund (ie fund balances at 1 March 2015 and subsequent returns thereon will also be treated as a vested right).

It is proposed you will be able to withdraw 10% of your initial deposit annually. Although this initial deposit is a fixed number, Treasury has indicated that the "initial deposit" value (for the purpose of calculating the amount that can be withdrawn) will increase annually with, say, inflation (not the return earned by the fund, which may be negative some years).

If you withdraw the full amount, you will be taxed on the withdrawal. You can then invest the balance in a retirement annuity, but not a preservation fund. That is not very tax effective. You can transfer your preservation fund tax free to another preservation fund however.

Please refer to our product page on the subject of preservation funds.