Fundamental Investments

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The main difference between a pension and provident fund is the following:

Under a pension fund at least two-thirds of the final benefit must be paid as a pension for the rest of the pensioner's life. A maximum of one-third of the final benefit may be taken as cash.
Under a provident fund, the full amount of the benefit available at retirement may be taken as a lump sum cash payment, irrespective of whether the benefit is calculated on a defined benefit or a defined contribution basis.
The tax concessions for employers and members in respect of the two types of funds also differ. The employer may deduct up to 20% of the member's salary for tax purposes under both pension and provident funds. In a pension fund up to 7,5% of members salary is tax deductible, while there is no tax deductible benefit for the members contribution in a provident fund.

RETIREMENT PLANNING VEHICLES: A COMPARISON
	Provident fund	Pension fund	Retirement annuity
Administrative requirements	Must be approved by the Registrar (Pension Funds Act). Must be approved by Commissioner of SARS Membership agreement between employer/employee: New fund – employee choice Existing fund – compulsory	Must be approved by the Registrar (Pension Funds Act). Must be approved by Commissioner of SARS Membership agreement between employer/employee: New fund – employee choice Existing fund – compulsory	Must be approved by the Registrar (Pension Funds Act). Must be approved by Commissioner of SARS No agreement between employer/employee required
	Fund must be registered	Fund must be registered	Fund must be registered
Deductible Contribution	Employer	Employer	Employer
	10% of approved remuneration for pension, provident funds and medical aid schemes. In practice up to 20% is allowed if justifiable. Section 11(i)	10% of approved remuneration for pension, provident funds and medical aid schemes. In practice up to 20% is allowed if justifiable. Section 11(i)	No contribution
	Not tax deductible	Deductible with max. of the greater of: - R1 750 Or - 7.5% of pensionable remuneration (limit also applies to government employees) Section 11(k)(i) Any disallowed excess may not be carried forward to the following year of assessment. The disallowed excess is allowed as a deduction at retirement.	Deductible with max. of the greater of: - 15% of non-retirement funding taxable income; or R3,500 – allowable pension fund contribution; or - R1,750
Arrear	Not tax deductible	R1 800 deductible p.a. Section 11 (k)(ii)(aa) Any excess above R1800 may be carried forward to the following year of assessment.	R1 800 deductible p.a. Section 11 (k)(ii)(aa) Any excess above R1800 may be carried forward to the following year of assessment.