For example, if you are currently paying tax at a rate of 45% and contribute R100 000 to your RA in the year of assessment, you effectively only contribute R55 000 of the R100 000, while SARS contributes the balance. Tax will be applicable when the funds eventually pay out at retirement, but due to the tax-exempt portion of the lump sum, as well as the tax rebates for individuals over 65 and 75, you may pay less tax at that time.
If you contribute more than the maximum (excess contributions), your tax benefit will roll over to the next tax year of assessment. Any excess contributions in subsequent tax years will continue to be rolled over. This means that you could receive a tax benefit at retirement, after retirement or your beneficiaries could benefit when you’ve passed away, as explained in the diagram.
Before retirement*
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At retirement
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After retirement |
After you pass away
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*The R350 000/27.5% limit includes member and employer contributions to workplace pension and provident funds.
This means you will benefit even more from compounded growth.
The two-pot retirement regime was introduced on 1 September 2024. The new system allows members access to a small portion of their retirement savings before they retire, while preserving the remainder until retirement (unless one of the exceptions as specified in the Income Tax Act applies). To achieve this, various notional components within a member’s retirement fund benefit/contract were created.
These components are referred to as:
Members are able to withdraw from the Savings component once in a tax year.
This means your savings for your retirement will be available when you need them.
Maximise the long-term growth of your savings by benefiting from a tax-free savings account (TFSA).
A retirement annuity (RA) is the ideal solution to make provision for a comfortable retirement.