Pension Fund Contributions
If you or your employer contribute to a registered pension fund, you are entitled to deduct these contributions, limited to the greater of:
- 7,5% of the income derived from the employment that contributes to this retirement fund, or
Any portions of the contributions not deducted cannot be carried forward to the next tax year but are allowed in calculating your tax-free portion of the lump sum that will pay out upon your retirement.
Retirement Annuity Fund Contributions
Any contributions to a registered retirement annuity fund are deductible, but limited to the greater of:
- R3,500 less the amount you claimed against your pension fund contributions (above)
- 15% of the taxable income that does not contribute to your retirement fund (remuneration not subjected to pension fund contributions).
Any portions of the contributions not deducted, may be carried forward to the next tax year.
Income Replacement Policies
An income replacement policy is a policy that will cover an individual against the loss of income as a result of illness, injury, disability, or unemployment (this does not refer to any possible UIF benefits).
The total premium contributions to an income replacement policy are tax-deductible. SARS will consider any successful claim against an income replacement policy as taxable income during the specific tax year in which the claim is paid (income received).
Retirement fund lump sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death, retirement or termination of employment due attaining the age of 55 years, sickness, accident, injury, incapacity, redundancy or termination of the employer’s trade.
Severance benefits consist of lump sums from or by arrangement with an employer due to relinquishment, termination, loss, repudiation, cancellation or variation of a person’s office or employment. The first R500 000 combined Retirement fund – and Severance – lump sum benefits are tax-free. Any additional amounts received is taxed according to the below table. View the Budget Tax Guide 2021 for more details.
Contact Onestop Accounting with any SARS related retirement plan queries.