retirement taxes

Retirement Readiness: A Guide to Tax-Efficient Planning

Retirement is a time to relax and enjoy your golden years, but it’s important to ensure that one has a plan in place for their finances. In order to encourage retirement savings benefits have been put in place. In South Africa, a retirement fund comes with three important tax benefits that everyone should be aware of. 

Tax benefits for retirement:

Firstly, retirement contributions are tax-deductible, which means that the greater the contributions, the more a person can reduce their taxable income and tax bill. 

Secondly, the returns on investments are tax-free. This allows an individual to grow their retirement fund without having to pay taxes on the returns. 

Thirdly, and finally, when a person retires, they can withdraw a lump sum without paying tax, subject to certain rules and limitations.

Helpful numbers and examples:

The limit for contributions is currently 27.5% of your taxable income or R350,000 per year, whichever is less. For example, a person contributed the maximum of R350,000. If R150,000 went towards a pension fund, only R200,000 of retirement annuity contributions would be deductible.

It is however not always the case that someone would contribute the maximum amount. As another example, if an individual earns R35,000 per month and contributes R3,500 per month to their retirement fund, they can reduce their annual tax bill by R13,000.

It is important to know how much is being put into a retirement account. If unsure about how much is being contributed, it is advised to talk to the HR department or a qualified financial advisor.

Tax thresholds

Two thirds of the retirement interest from a pension, pension preservation, or retirement annuity fund is received in the form of an annuity (a regular pension). It is important to note that if the income from a person’s annuity exceeds the tax threshold, tax is payable on that amount. The tax thresholds are as follows:

For the 2023 year of assessment (commencing 1 March 2022 and ending 28 February 2023):

For Persons below the age of 65 – R91 250 per annum

Persons aged 65 and under 75 – R141 250

Person aged 75 and above – R157 900.

The 2023 tax year ends on 28 February, so if you want to take advantage of the tax-deductible limits. Don’t miss out on these benefits and top up retirement funds before this date. Remember that the earlier someone starts saving for retirement, the better off they’ll be in the long run. Don’t delay – start planning for retirement today. Get in touch with one of Remnants expert advisors for guidance towards a comfortable retirement.