Key Benefits
- Only a single transfer may be made from an approved fund.
- A key feature is the full disclosure of all costs.
- A guaranteed fund can be selected as an added benefit to protect the investor against market fluctuations.
- Payment is accepted in the form of withdrawal benefits from any approved funds, on a tax-free basis. This means that no tax is levied on any amount transferred, and has the same effect as a pre-tax investment.
- The Investor may select from a wide range of local and offshore unit trust funds; money markets accounts, guarantee funds, wrap funds and structured funds. However, in terms of the Pension Funds Act, a minimum of 25% of a member's capital must be invested in a combination of gilt and income funds, and money market accounts. Alternatively he/she may invest 100% of his capital must be invested in a combination of gilt and income funds, and money market accounts. Alternatively he / she may invest 100% of his capital in a selection of managed prudential investments.
- When markets are perceived to be expensive, the investor may phase the investments into an investment of his / her choice, by making use of a money market account.
- At retirement, the normal options available to pensions or provident funds will apply Switches between different underlying funds at greatly reduced costs.
- Any member is entitled to one withdrawal, either from his / her transferring fund or the preservation fund prior to retirement. It is possible to withdraw any amount, up to the full fund value. Under current legislation, the first R1 800 of the withdrawal will be tax-free, with the balance being taxed at the higher of the average rate of tax, in the year of withdrawal or the previous year.
- The member selects his / her own retirement date at inception but this can be altered should circumstances change.
The preservation fund will pay out a lump sum of up to one third (1/3) of the value of the fund account on the date of retirement. By law the member is compelled to utilise the balance of the fund to purchase an income (annuity) payable for the remainder of their lives.
The preservation fund can pay out the full value to the member on the date of retirement.
On retirement the member qualifies for certain benefit:
Deductions Retirement
Prior to 2 March 2016
Current Pension Fund Contributions
Limited to the greater of 7,5% of remuneration from retirement-funding employment (the amount taken into account to determine contributions to a pension or provident fund) or R1 750.
Excess contributions are not carried forward to the next year of assessment but are accumulated for the purpose of determining the tax-free portion of the lump sum and/or annuity upon retirement.
Arrears Defined Benefit Pension Fund Contributions
Up to a maximum of R1 800 per year. Any excess may be carried forward.
Current Retirement Annuity Fund Contributions
Limited to the greater of 15% of taxable income from non-retirement-funding employment, excluding any retirement fund lump sum benefits, or R3 500 less current contributions to a pension fund, or R1 750. Any excess may be carried forward.
Reinstated Retirement Annuity Fund Contributions
Up to a maximum of R 1 800 per year. Any excess may be carried forward.
As from 1 March 2016
Pension, Provident and Retirement Annuity Fund Contributions
The total contributions to retirement funds are deductible but limited to 27,5% of the greater of remuneration or taxable income, including capital gains, but excluding lump sums, prior to the deduction for donations, capped at an annual limit of R350 000. Any excess maybe carried forward.
Contributions paid by the employer are taxed as a fringe benefit in the hands of the employee and are deemed to be contributions paid by the employee in order to calculate the allowable deduction.
The employer deduction for contributions made to these funds on the employee’s behalf is not subject to any limitation (2016 : 20% of remuneration).
Annuitisation Rules
Pension and retirement annuity funds are subject to the one-third lump sum and the two-thirds annuity rules unless the lump sum is below R247 500 (2016 : R75 000).
As from 1 March 2019, lump sums from provident funds will be subject to annuitisation and apportioned to ensure contributions made prior to 1 March 2019 and the resultant growth may be paid out as a lump sum. Where the member will be at least 55 years old on 1 March 2019 the lump sum from the provident fund is not subject to the annuitisation rules.
As from 1 October 2007, the taxable portion of a lump sum from a pension, provident or retirement annuity fund on retirement or death is the lump sum less any contributions that have not been allowed as a tax deduction plus the taxable portion of all lump sums previously received. As from 1 March 2011, certain severance benefits are also taxed in terms of this table.
This amount is subject to tax at the following rates less any tax on the previous lump sums which is calculated in accordance with the current table regardless of the tax actually paid on that lump sum:
Lump sum accruing between 1 March 2011 and 28 February 2014
| Taxable portion of lump sum |
Rates of tax |
| R0 - R 315 000 |
Nil |
| R 315 001 - R 630 000 |
18% of the amount over R315 000 |
| R 630 001 - R 945 000 |
R 56 700 + 27% of the amount over R630 000 |
| R 945 001+ |
R141 750 + 36% of the amount over R945 000 |
An assessed loss cannot be set-off against the taxable lump sum.
Lump sum accruing between 1 March 2014 and 28 February 2019
| Taxable portion of lump sum |
Rates of tax |
| R0 - R 500 000 |
Nil |
| R500 001 - R 700 000 |
18% of the amount over R500 000 |
| R 700 001 - R 1 050 000 |
R36 000 + 27% of the amount over R700 000 |
| R 1 050 001+ |
R130 500 + 36% of the amount over R1 050 000 |
An assessed loss cannot be set-off against the taxable lump sum.
Withdrawal Lump Sum Benefits
As from 1 March 2009, the taxable portion of a pre-retirement lump sum from a pension or provident fund is the amount withdrawn less any transfer to a new fund plus all withdrawal lump sums previously received.
This amount is subject to tax at the following rates less any tax on the previous lump sums which is calculated in accordance with the current table regardless of the tax actually paid on that lump sum:
Lump sum accruing between 1 March 2009 and 28 February 2014
| Taxable portion of lump sum |
Rates of tax |
| R0 - R 22 500 |
Nil |
| R 22 501 - R 600 000 |
18% of the amount over R22 500 |
| R 600 001 - R 900 000 |
R 103 950 + 27% of the amount over R600 000 |
| R 900 001+ |
R184 950+ 36% of the amount over R900 000 |
An assessed loss cannot be set-off against the taxable lump sum.
Lump sum accruing between 1 March 2014 and 28 February 2019
| Taxable portion of lump sum |
Rates of tax |
| R0 - R 25 000 |
Nil |
| R25 001 - R 660 000 |
18% of the amount over R25 000 |
| R660 001 - R 990 000 |
R114 300 + 27% of the amount over R660 000 |
| R 990 001+ |
R203 400 + 36% of the amount over R990 000 |
An assessed loss cannot be set-off against the taxable lump sum.
Source: Glacier tax guide 2018-2019
TAXATION OF THE FUND
In terms of the current legislation the fund itself is not taxed.
DEATH
In the event of a member pre-deceasing the selected retirement date, the market value of the deceased member's fund account, net of tax will be paid to dependants or nominated beneficiaries in terms of Section 37C of the Pension Funds Act. The Trustees of the fund have to exercise their discretion in order to ensure a) the correct people benefit, and b) those most in need receive as much as possible.
A Living Annuity is a post-retirement product providing an income for the life of the member.
It enables the member of a pension, provident or retirement fund to purchase an untied annuity (pension) on retirement. Current legislation requires a retiring member of a pension or retirement annuity fund to purchase a compulsory annuity with a minimum of two thirds (2/3) of his / her retirement capital. The member of a provident fund is also entitled to purchase an annuity if the rules of the fund specifically permit him / her to do so.
Key Benefits
• All charges and costs are disclosed. The Investor may select from a wide range of local offshore unit trust funds; money markets accounts guarantee funds, wrap funds and structured funds. However, in terms of the Pension Funds Act, a minimum of 25% of a member's capital must be invested in a combination of gilt and income funds, and money market accounts. Alternatively he / she may invest 100% of his capital in property, in a selection of managed prudential investments.
• The investor may switch between the various funds offered at any time, and normally at a greatly reduced.
• In times of uncertainty, the investor may choose to receive a full guaranteed income.
• The capital I protected in that the remaining balance of the Investment accrues to his / her estate or nominated beneficiaries, upon death.
• The investment cannot be attached on sequestration.
• The investor can benefit from Rand Cost averaging, by phasing his/her investment into the market over a period of time.
• Depending on his/her income requirements, the investor may currently select an income of between 2.5% and 17.5% of his/her investment value. The income can be paid monthly, quarterly, semi-annually or annually in arrears to a nominated bank account. The life annuity should never be exhausted during the annuitant's lifetime.
• The member can thus defer a potential liability for tax on the income earned until they need to draw the income. This would be useful if he / she still had other sources of income.
• The member can amend the income percentage annually on policy anniversary. He / she can thus adjust the income received to the circumstances at that time while attempting to grow the capital.
DEATH
On the death of the annuitant, the portfolio value may be paid out in the form of an accelerated annuity to the nominated beneficiaries over a period of five years. Alternatively, the deceased member's dependants may elect to have the annuity paid over their lifetime.
TAXATION
The annuity payments made to the annuitant are fully taxable in his/her hands, at his/her marginal tax rate. The portfolio will not be subject to tax.
A Retirement Annuity is an approved individual tax-efficient retirement plan.
Individuals, to supplement their company pension and provident funds often buy Retirement Annuities. However, it is also very useful for self-employed people who need to save for retirement in a tax-effective manner, who cannot be members of a traditional pension or provident fund.
Key Benefits
Both single and/or regular investments may be made.
The investor may switch between financial instruments or portfolios within the investment.
Contributions are tax-deductible up to the limits provided by the Income Tax Act.
A member may select his/her retirement date, which may be altered at a later stage, but with a minimum age of 55 years and a maximum of 69 years.
The investment cannot be attached on sequestration.
The investor may select from a wide range of local and offshore unit trust funds; money markets accounts, guarantee funds, wrap funds and structured funds. However, in terms of the Pension Funds Act, a minimum of 25% of a member's capital must be invested in a combination of gilt, and income funds, and money market accounts. Alternatively his/she may invest 100% of his/her capital in a selection of managed prudential investments.
Some Retirement Annuity funds can accept transfers from other approved pension, provident or retirement annuity funds, prior to the retirement date, on a tax-free basis.
TAXATION
DEDUCTIBILITY OF CONTRIBUTIONS
In any particular tax year, a member may claim a deduction from his/her taxable income which is the greater of:
15% of non-retirement funding income; (NRFI).
or
R3500 less allowable pension fund contributions
or
R1750
Plus
An additional amount of
R1800 deductible per annum - Section 11 (k) (ii) (aa) for arrear contributions
RETIREMENT BENEFITS
The Retirement Benefit will pay out a lump sum of up to one third (1/3) of the total value of the Retirement Annuity on the date of retirement. The balance must be used to buy a life annuity (pension).
Under current legislation the first R300 000 is tax free. The next R300 000 is taxed at 18%. The next R300 000 at 27% and the balance of the withdrawal amount up to one-third (?) of the total value is taxed at 34%. No member may retire before the age of 55 unless the member becomes permanently disabled.
TAXATION OF GROWTH
In terms of current legislation, the Retirement Annuity Fund will be taxed on all the interest and rental income at 25%. Although this will have the effect of reducing the overall growth, this is still lower than the taxation paid for natural persons in terms of the "Four Fund Approach" which is currently 30% p.a.
DEATH
If the member dies prior to reaching his/her selected retirement date, the dependants or nominees shall be entitled to receive a pension based on the member's total fund value. The dependants or nominees shall have the option of taking a commutation net of tax, with the balance being used to provide a compulsory purchase annuity
DISABILITY
If the member is disabled prior to retirement, the member is entitled to the same benefits and options if he/she had retired normally from the fund. The member will also qualify for the same tax relief offered to retiring members even though his / her age may be less than 55 years.
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