Answer to a question from a reader

I accidentally applied for early retirement due to ill health instead of disability. What can I do?

The short answer

Unfortunately, you can't take your application back once it's been approved. You should get details about your umbrella fund's retirement due to ill health benefits.

The whole question

Dear Athalie

My employer didn't apply for disability from my umbrella fund for me after I acquired an occupational disease. Following a mental breakdown, I emailed my employer to ask for early retirement due to ill health because I thought it was the same as a disability benefit. Within 30 minutes it was approved and my contract was terminated. Now they refuse to help me any further. What can I do?

The long answer

Although you didn’t understand the difference between early retirement due to ill health and disability at the time you applied for early retirement, I’m afraid that you won’t be able to take it back. You wrote the email asking to take early retirement due to ill health and your request was approved and your contract was duly terminated.

As I don’t know which umbrella fund you belonged to and each fund has its own rules, I can’t say what the difference would be in the early retirement benefit as compared to the disability benefit, but I list below what some of the various umbrella funds have said;

Old Mutual has said in an article: “As South Africa’s Taxation Law Amendments Act came into effect on 1 March 2021, it is no longer possible for provident fund members to take their entire disability benefit as a lump sum, should they be declared disabled.”

The law and the retirement fund say that if an employee leaves due to ill health they will get a retirement benefit. When you become entitled to receive a disability benefit, it will be treated as a retirement benefit and the new annuitisation rules at retirement will apply. This means that the benefit will no longer automatically be paid out as a lump sum and a portion of it may have to be used to pay you a monthly income.

It goes on to state that “The rules for who gets disability are very strict and are laid out in the fund’s rules. The employee (fund member) must be unable to do any occupation they are qualified for in the open labour market and the insurer decides whether the employee qualifies or not.”

According to 10X Investments:

“If you retire early due to ill health from a pension fund, you will be compelled to buy an annuity with two-thirds, but you will pay less tax on the one-third cash lump sum than if you resign. If you resign from a pension fund, you will pay more tax on your cash lump sum, but you can then take the whole amount as cash. If you belong to a provident fund, and you plan to take the whole amount as a lump sum, it would pay you to retire early, as you will pay less tax, and you can still take the whole amount as cash.”

From the Sanlam umbrella fund: “A member may retire up to 10 years before his/her normal retirement date. The employer’s permission is required should a member wish to retire more than 5 years before normal retirement date. Members who retire prior to age 55 should note the tax implications of doing so.”

From the South African Dental Technicians Employees umbrella fund: “Your early retirement benefit is calculated the same way the normal retirement benefit is calculated, but you’ll have less money saved than if you retire on your normal retirement date.

"You can retire early if you are too sick to work. If you become too sick to carry on working, but you don’t qualify for a disability benefit, the employer might allow you to retire early because of ill-health. You will get your fund credit the same way you would get it under normal retirement age.”

From Allan Gray umbrella fund: “If you become permanently disabled (due to an injury or illness), you may apply for early retirement (i.e. prior to your 55th birthday, if you are an Active Member, or prior to your Normal Retirement Date, if your employment was terminated prior to that date) by submitting the ‘Request for approval of early retirement’ form, together with the necessary supporting documents. The Board needs to approve your application for early retirement based on medical evidence obtained at your cost.”

So, while the rules may be different depending on which fund it is, it is not clear to me that there would be a very great difference in the benefits you would get from early retirement due to ill health, or from disability. You would be able to find out by getting a copy of your umbrella fund’s rules or asking the HR office at your previous work to explain the difference to you.

Finally, you could also apply for the SASSA Disability Grant, which is a means-tested grant. 

The applicant for that grant:

  • Must be a South African citizen /permanent resident;

  • Must be resident in South Africa;

  • Must be 18 to 59 years of age;

  • Must submit a medical / assessment report confirming disability;

  • Medical assessment must not be older than three months at date of application;

  • Must meet the requirements of the means test;

  • Must not be maintained or cared for in a State Institution;

  • Must not be in receipt of another social grant in respect of her/himself.

Wishing you the best,

Answered on Oct. 4, 2022, 3:24 p.m.

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