The South African Revenue Service (SARS) wants to help you pay for your retirement.
The way in which they do this is by offering generous tax deductions when you make contributions to your retirement annuity (RA), pension or provident fund. On 1 March 2016, the tax deductions for retirement savings increased from 15% to 27.5% – which means you can now save more for retirement and get back more from SARS.
What else has changed?
You are now able to deduct your contributions to all retirement funds, with the maximum tax deduction you may make in a tax year limited to the greater of 27.5% of taxable income or remuneration (see De nitions), subject to an annual ceiling of R350 000. Contributions above this limit made directly by your employer are also now taxable as a fringe benefit in your hands.
If you contribute more than the limits, your extra after-tax contributions can be used to increase the value of any tax-free lump sum you take before or at retirement or to reduce the taxable portion of your living annuity income in retirement. Excess contributions in one year can also be carried over and deducted in the next year.
Remember that even if you are a member of company pension or provident scheme you can set up a retirement annuity to supplement your existing contributions. If it is a modern RA like those offered by Allan Gray you can stop and start your retirement annuity payments whenever you want and the investment is held in your name (even if you get it through an employer). Read More