A pension fund is a contribution made by an employer & employee for the benefit of cash lump payments & monthly income withdrawals,when they retire, or they are unable to work because of illness or when they die whilst still employed on the job for the benefit of their loved ones.

An employee can take up to a maximum of one third of their savings in a cash lump sum upon retirement and the balance must be used to purchase a retirement annuity fund.

However, if the total retirement interest in the fund is less than R247 500, the employee can be given the opportunity to withdraw the entire funds from the pension fund.

Pension fund contributions qualify for a tax deduction of up to 27,5% of your taxable income (to a maximum of R350,000 per year).

This limit applies to the total of contributions you made to all funds for the year. This means you’ll save a significant amount on your annual tax bill – a great reason to consider starting to save for your retirement now if you haven’t already.

For example, let’s say your taxable income (which includes the basic salary, commissions, overtime, performance bonuses etc.) is R10,000 per month and you contribute R1,000 to a pension fund and R600 to a provident fund each month.

This means your total retirement contributions for the month are:

R1,000) + R600 =R1,600

Your monthly taxable income, before deductions, is R10,000.
This means you can claim a tax deduction of up to R2,750 (27,5% of R10,000). You’re limited to the total of your actual contributions though, so in this case the amount of R1,600 can be deducted from your taxable income for the year.

• Cash lump sum payments from pension funds are subject to tax according to the cash lump sum tax calculator.
• Other Monthly Annuity Fund payouts tied to the pension fund are subject to tax as regular income/ basic pay.
• Interest income is tax free
• Dividends are tax free.
• Capital gains on retirement annuities investment funds are also tax free.

• Pension fund contributions by companies are captured & disclosed under “Company contributions”.
• Pension fund contributions by self employed individuals are disclosed under “Personal Contributions”.