HOW WILL IT
treatment of retirement savings i s based on differentiating between retirement funding income, the income on which a worker’s pension or provident fund contribution is calculated such as their basic salary, and non-retirement funding income, such as overtime, thirteenth cheques or bonuses.
A taxpayer may deduct pension fund contributions of as much as 7.5% of her retirement funding income from taxable income every year and retirement annuity contributions of as much as 15% of their nonretirement funding income every year. Provident funds don’t attract any tax deductibility, but payouts aren’t taxed.
A member of a pension fund or retirement annuity can take one third of their capital at retirement or age 55, whichever is the earliest, and must invest the surplus in an annuity. Provident fund members can take all their capital at retirement.
Following the reforms, provident fund members will be treated the same as pension fund and retirement annuity fund members in that they will be forced to annuitise two thirds of their capital.
The reforms will also see the scrapping of the difference between retirement funding and non-retirement funding income, and taxpayers will be allowed to deduct an amount of as much as 27.5% of taxable income with a ceiling of R350 000 per year.