Incentives to keep your retirement money invested

2014-03-02 14:00

How government has reformed the way you’re taxed when withdrawing retirement funds

In line with retirement reform proposals over the past few years, the 2014/15 budget includes changes to the way your withdrawals from your retirement funds are taxed.

These changes are intended to encourage you to save for retirement and to preserve your savings throughout your working life.

In his budget speech this week, Finance Minister Pravin Gordhan said: “We recognise that households must be encouraged to invest in their future, including investment in homes and saving for retirement.”

The tax you pay when you withdraw money from your retirement fund prior to retirement, as well as when you retire, has been revised so that you can withdraw larger tax-free amounts.

This is the first time the preretirement tax withdrawal structure has changed since it was introduced in 2007. The tax you pay on a lump sum withdrawal at retirement was last changed in 2011.

With effect from March 1 this year, if you change jobs and withdraw a lump sum from your retirement fund, the first R25?000 is now tax-free. But the tax you pay on subsequent withdrawals has now been increased to discourage you from accessing your retirement savings.

You will pay 18% tax on withdrawals between R25?000 and R660?000. The tax on withdrawals between R660?000 and R990?000 has increased to R114?300 plus 27% of your taxable income above R660?000.

Your withdrawal of more than R990?000 will be taxed at R203?400 plus 36% of your taxable income above R990?000.

When you retire, the tax-free lump sum that you can withdraw has increased from R315?000 to R500?000. The larger increase in the tax-free lump sum is intended to avoid lower-income workers having to pay tax on their lump sum withdrawals.

The tax you pay on the amounts you withdraw thereafter has also decreased:

»?Withdrawals between R500?000 and R700?000 will be taxed at 18% of your taxable income above R500?000;

» Withdrawals between R700?000 and R1.05?million will be taxed at R36?000 plus 27% of your taxable income above R700?000; and

» Withdrawals of more than R1.05?million will cost you R130?500 plus 36% of your taxable income above R1.05?million.

In addition to these measures, Gordhan announced that “further steps will be taken to make sure you have a secure income in retirement. Unnecessary costs in the system will be cut.”

To this end, an agreement has been reached with the Association of Savings and Investment SA on a way forward to reduce the level of charges for retirement savings products. Draft regulatory reforms around this will be made public shortly.

Gordhan said: “Legislation has already been passed by Parliament to improve governance over pension and provident funds, and to align the rules and tax treatment of pension and provident funds. We still seek improved coverage and preservation of retirement funds and lower costs in the system,” he said.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.