It is important that you as a member understand the different tax implications when benefits are paid. Let’s take a look at a few:
- Retirement benefits
- Death benefits
- Benefits on withdrawal
Retirement and retrenchment benefits
The first R550 000 payable at retirement or retrenchment from a pension, provident or retirement annuity fund is tax-free.
This amount applies to the aggregate of all retirement lump sums received over the retiree’s lifetime. This means that you cannot get R550 000 from the Columbus Retirement Fund and R550 000 from a Living Annuity. Your Accumulated Credits will be added together, and the first R550 000 will then be tax-free. The balance will be taxed according to the scale above.
Any withdrawal benefit previously received tax-free, as well as tax-free portions for amounts paid out in respect of divorces or maintenance orders after 1 March 2009 will also be deducted off the tax-free amount.
| The balance is taxed according to the following fixed scale: | |
| R0 - R550 000 | 0% |
| R550 001 - R770 000 | 18% of the amount exceeding R550 000 |
| R770 001 - R1 155 000 | R39 600 plus 27% of the amount exceeding R770 000 |
| R1 155 001 and above | R143 550 plus 36% of the amount exceeding R1 155 000 |
Death benefits
The Accumulated Credit portions paid by the Columbus Retirement Fund are taxed exactly the same as retirement benefits above.
This amount applies to the aggregate of all lump sums received over the deceased’s lifetime. This means that your dependents cannot get R550 000 tax-free from the Columbus Retirement Fund and R550 000 from another fund. Your Accumulated Credit of both Funds will be added together and the first R550 000 will then be tax-free. The balance will be taxed according to the scale above.
Any withdrawal benefit previously received tax-free, as well as tax-free portions for amounts paid out in respect of divorces or maintenance orders after 1 March 2009 will also be deducted off the tax-free amount.
| The first R550 000 payable at retirement from a pension, provident or retirement annuity fund is tax-free. The balance is taxed according to the following fixed scale: | |
| R0 - R550 000 | 0% |
| R550 001 - R770 000 | 18% of the amount exceeding R550 000 |
| R770 001 - R1 155 000 | R39 600 plus 27% of the amount exceeding R770 000 |
| R1 155 001 and above | R143 550 plus 36% of the amount exceeding R1 155 000 |
Benefits on withdrawal
This amount applies to the aggregate of all withdrawal lump sums received over the member’s lifetime after 1 March 2009. This means that you cannot get R27 500 from the Columbus Retirement Fund and R27 500 from another Fund into the future. Your Accumulated Credits will be added together, and the first R27 500 will then be tax-free. The balance will be taxed according to the scale above. It also applies to all your withdrawal benefits over your lifetime.
| The first R27 500 of a cash withdrawal will be tax-free with the balance taxed as follows: | |
| R0 - R27 500 | 0% |
| R27 501 - R726 000 | 18% of the amount exceeding R27 500 |
| R726 001 - R1 089 000 | R125 730 plus 27% of the amount exceeding R726 000 |
| R1 089 001 and above | R223 740 plus 36% of the amount exceeding R1 089 000 |
Impact of VAT on retirement
The example below assumes that clients will not reduce their savings as they near retirement.
Mr Joe Soap is 45 years old and retiring at 65. The following applies to Mr Soap:
Retirement annuity: R3 000 000 (contributing R10 000 per month)
Linked investment: R500 000 (contributing R1 500 per month)
Current expenses: R35 000 per month
Retirement expenses: R40 000 per month
Changes based on VAT increase:
If we assume that Mr Soap's expenses of R35 000 include VAT at 14%, then the increase to 15% results in a R300 increase.
If we assume that the Mr Soap’s post-retirement expenses of R40 000 (including VAT at 14%) increase to account for the additional 1% in VAT, the increase in his expenses is R350.
Courtesy of Old Mutual:
Click here to read article.
Taxation of contributions
