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Retirement Funds – Do you know what kind of fund you belong to?

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Retirement Funds – Do you know what kind of fund you belong to?

Most people belong to a retirement fund, usually as a condition of their employment.  Although the term pension fund is loosely used. There are, in fact, different types of retirement funds and not many people are aware of the differences between each of these funds. This article will compare pension, provident and retirement annuity funds.

In South Africa, all retirement funds are retirement savings vehicles registered under the Pension Funds Act. These funds are approved for tax purposes by the South African Revenue Service (SARS). This ‘approval’ gives the funds certain kinds of tax benefits.

The differences between these funds are set out in the below table.

Feature Pension Provident Retirement Annuity
Tax on Contributions Employer contributions are taxed as a fringe benefit in the hands of the member.

Member and employer contributions are tax deductible. The limit on the amount that is tax deductible is up to 27.5% of the higher of total remuneration or taxable income.

This is subject to a maximum of R350,000 per annum.

The member will receive the tax deduction in the month in which the contribution was taxed.  
Employer contributions are taxed as a fringe benefit in the hands of the member.

Member and employer contributions are tax deductible up to 27.5% of the higher of remuneration or taxable income, subject to a maximum of R350,000 per annum.

The member will receive the tax deduction in the month in which the contribution was taxed.
The member can claim a tax deduction for the contributions the member paid when he files his annual tax return.

If the employer pays contributions then the member will pay fringe benefit tax on the employer contributions. 

Member and employer contributions are tax deductible up to 27.5% of the higher of remuneration or taxable income, subject to a maximum of R350,000 per annum.
Withdrawal benefit (Withdrawing a part or full amount of your savings). When the member leaves employment he can take a withdrawal benefit. 

He can choose to take the benefit as a lump sum, transfer the benefit to another fund or a combination of a lump sum and transfer to another fund.

Lump sum benefits will be taxed according to the withdrawal tax table.  
When the member leaves employment he can take a withdrawal benefit.

He can choose to take the benefit as a lump sum, transfer the benefit to another fund or a combination of a lump sum and transfer to another fund.

Lump sum benefits will be taxed according to the withdrawal tax table.
The member can only take a withdrawal benefit if the benefit is less than R7 000,f the member emigrates from South Africa or if the member is not a South African resident and his visa expires.

Leaving employment will not entitle the member to a withdrawal benefit.
Benefit at retirement If the member’s benefit is more than R247,500 he can take up to 1/3 of the benefit as a lump sum and use the balance to buy an annuity that will pay a monthly income. If less, the member can withdraw the full amount.   The member can choose to take the entire benefit as a lump sum or he can choose to use as much of the benefit as he would like to buy an annuity that will pay a monthly income. If the member’s benefit is more than R247,500 he can take up to 1/3 of the benefit as a lump sum and use the balance to buy an annuity that will pay a monthly income.

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