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16 Jul 2018

Master Getting retirement right, now. Build your Future

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The Good

Big tax deductions for diligent contributors

From 1st March 2015, contributions by employer or employee to any form of retirement funding – namely Provident, Pension or Retirement Annuity give the taxpayer a deduction of up to 27.5% of salary or taxable income, whichever is the greater. This is capped at R350 000 per annum, but any excess can be carried forward. This is a fantastic incentive for taxpayers to save for retirement with huge assistance from the taxman.

However, most of our clients – who are great conscientious employers – have a standard combined company and employee contribution rate of around 15% of salary. This is a historical amount based on tax structures that are now very out of date and it may be time for employers to start negotiations with their staff to increase their compulsory contributions. If they don’t, one has to rely on the employee being sufficiently informed and sensible enough to make up the difference on their own. This is highly unlikely. Good legislation though.

Annuitisation of 2/3 of the retirement benefit

The second part of the changes initiated in 2015 was that provident, pension and retirement annuity benefits would all be treated the same way. Provident fund members would no longer have access to 100% of their retirement benefit on retirement, but would only be able to access 1/3 in cash, the remaining 2/3 being invested in order to provide a monthly income. The 1/3, 2/3 rule already applies to pension funds and retirement annuities.

 

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