FREQUENTLY ASKED QUESTIONS
1. Is the Municipal Gratuity Fund a pension or a provident fund?
The Municipal Gratuity Fund is a registered defined contribution Pension Fund, but it operates like a provident fund as a member is allowed to take the full benefit in cash at retirement pre-March 2021.
2. What is my minimum contribution?
7.5% of your pensionable salary is the minimum and 22% is the maximum you may contribute. Note that the largest of 27.5% or R350 000 per annum is a tax-free contribution.
With the introduction of the Life Stage Model members close to retirement, age 60 to 65, will automatically be switched into the Conservative Portfolio (CP), except for the members in the Guaranteed Portfolio (GP). The CP has had similar returns to the GP in the past, but without the guarantee available in the GP.
3.How much must my employer contribute on my behalf?
18% for all new employees and if you were employed prior to 1 August 2012 it will be 22%.
4.How much of my contribution is allocated towards admin and risk benefits?
The employee contribution does not have any cost deducted, the admin and risk cost are deducted from the employer’s contribution and is 3.5% of pensionable salary.
5.How do I calculate my fund credit?
Employee contribution + employer contribution + investment return – cost (admin cost, risk benefit cost and asset management fees).
6.At what age may I retire?
Normal retirement is at age 65 and early retirement from age 50.
7.What benefits do I have in the Fund?
Resignation benefits, retirement benefits, death benefits, disability benefits and family funeral plan.
8.Do I get my total benefit when I resign or am I penalized?
If you exit the employment of your employer your total fund credit as explained in point 5 hereinbefore is payable subject to tax.
9.Does the Fund pay me a pension when I retire?
No. The Fund pays a lump sum at retirement it is your responsibility, with the assistance of your financial advisor, to invest your benefit so that you have a monthly income from an annuity.
10.Will I be penalized if I go on early retirement?
No. The Fund is not a defined benefit fund, which penalizes you when you go on early retirement. You are penalizing yourself so to speak. Say for instance you retire at age 57 instead of 65 then you are retiring 8 years before normal retirement age and you are forfeiting the contributions that would have been paid into your fund credit for those 8 years as well as the investment return AND you have to add your salary you would have earned for those 8 years. It is thus important when considering early retirement to take all these factors into consideration. Make sure you can afford to retire early.
11.May I resign before normal retirement age and what is the consequences?
You may resign up to age 64 years and 11 months, thus before normal retirement age BUT there are tax consequences. If you resign only R25 000 will be tax free whereas if you retire you will receive R500 000 tax-free. Please take note the R500 000 is once in your lifetime and includes your annuity lump sums taken as well.
12.What is the difference between a nomination form and a last will?
A person’s last will is a legal declaration of a person’s wish regarding the disposal of his or her estate after death. It is important to complete your nomination form as the Board will use the information to determine who all the possible dependants are. If you do not have any dependants and your estate is solvent then the death benefit will be distributed according to your nomination form.Section 37C of the Pension Funds Act (the Act) regulates the distribution of the death benefits and is very explicit in this regard.The Act entrusts the Board of Fund with a discretion to distribute the death benefits amongstdependants and/or nominees. The discretion must be applied within the boundaries set by law. The Act stipulates that if a pension fund cannot trace any dependants of the deceased member within twelve months, then benefit must be paid to the nominees as specified on the nomination form. If there are no dependants and no nomination form then the death benefit will be paid into the estate of the deceased member.
13.How MGF differ from other funds?
MGF is a defined contribution fund whereby a member may withdraw the full fund credit as a lump sum at retirement, subject to the March 2021 annuitisation legislation.Members who were 55 years and older on 1 March 2021 will have the option to have the full fund credit paid to them as a lump sum retirement benefitif they remain a member of the MGF until they retire. The annuitisation legislation does not affect these members at all.Members who were younger than 55 years on 1 March 2021 may take their total fund credit prior to 1 March as a lump sum at retirement, this is called the vested portion of your benefit. The non-vested portion of your benefit build up from 1 March 2021 and may be taken as a lump sum at retirement if the total value is less than R247 500. If the non-vested portion exceeds R247 500 at retirement then only one-third may be taken in cash as a lump sum the remaining two-thirds must be used to purchase a pension.
14.Who is covered under the Family Funeral Plan?
The family funeral plan covers the principal member and his/her immediate family members. The immediate family members include the spouse and children (including legally adopted children) up to the age of 21. Children above 21 and not older than 25 will be covered only if they are still studying full time and disabled children are covered there is no age restriction. It is important to note that not all the people listed on your nomination form qualifies for the family funeral plan, it does not include friends, parents or siblings. When a member exits the Fund, the funeral cover lapses.Please complete your funeral plan nomination form, if you do not complete it the funeral benefit will be paid to your estate in the case of the member’s death.
15.May I borrow against my fund credit for housing purposes?
The Fund does not allow direct home loans against the Fund, but pension backed home loans are allowed with Standard Bank or FNB. Contact your HR practitioner to find out with which bank your employer has signed the letter of undertaking for the pension backed home loans.The Fund will not get involved with the approval of the loan or to try to force the bank to grant a loan as the banks have to make sure all loans are granted in accordance with the regulations in the National Credit Act. You may borrow up to a maximum of 50% of your fund credit, should the bank approve the loan.
16.Who constitutes the Board of Fund?
The Board of Fund is constituted by both the employee and employer representatives. Members from participating municipalities elect a member representative and the municipalityas the employer will appoint a representative amongstcouncilors serving within the municipality. Member and employer representatives elect the Board of the Fund at the Annual Meeting of the Fund when a vacancy arises. The term of office of elected representatives and Board members is 4 years.
