Retirement Annuities

Tax Changes

1. The full retirement value of a Pension or Retirement Annuity may be commuted as a lump sum where the retirement value is R75 000 or less, amendments to the definitions of pension fund and retirement annuity fund in section 1 of the Income Tax Act, 1962, give effect to this change.

2. Under the new legislation, everyone will be eligible for tax-free lump sum of R315 000 (as a life-time tax exempt amount).  In addition to this tax free amount a person may claim previously non deductible contributions (including previously non deductible contributions made to a public sector fund on or before 1 March 1998 as tax free)

3. The current complex averaging formula used to calculate the rate used to tax retirement lump sums has been replaced with a more simplified, separate, rate schedule.  The first R315 000 of the lump sum payout is tax free as discussed above, the amount from R315 001 through R630 000 will be subject to a rate of 18%, and the amount from R630 001through    R945 000 will be subject to a 27% rate.  All amounts above R945 001 will be taxed at a rate of 36%.  The payouts received are taxed separately using their own rate schedule and are therefore unaffected by deductions, assessed losses and annual rebates.

Amount                                         Tax Rate

First R315 000                               Tax free

R315 001 to R630 000                    18%

R630 001 to R945 000                    27%

R945 001 and above                       36%