BusinessDo I qualify for a tax-free withdrawal at retirement...

Do I qualify for a tax-free withdrawal at retirement if I’ve made a prior withdrawal?

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Two advisors reply this reader’s query.



The scenario: An individual resigns from their job. They’ve a pension fund with their ex-employer, and its worth is say R500 000. I consider one can take a once-off withdrawal with the primary R25 000 being tax-free and the quantity as much as R600 000 being taxed at 18%.

If one did this, the query is, upon retirement/over age 55 (with different retirement/pension financial savings obtainable) does one nonetheless qualify for the tax-free quantity at this level; in different phrases, the primary R500 000 tax-free after which regular month-to-month annuity thereafter, or is that not obtainable as a result of taxed withdrawal previous to age 55/retirement?


Thanks rather a lot for [your question].

Let’s begin off by affirming that the authorized retirement age in South Africa is 55.

Why is that this necessary to notice? If you happen to withdraw out of your pension or provident fund earlier than this age, you may be taxed in response to the withdrawal profit tax desk. If you happen to withdraw after the age of 55, you may be taxed in response to the retirement and loss of life profit or severance tax desk.

If you happen to resolve to withdraw your pension/provident fund earlier than 55, you may be taxed in response to the desk beneath. As you appropriately acknowledged in your instance, you may be taxed 18% on the R600 000 withdrawal. This implies you’ll pay R103 500 tax on the withdrawal.

retirement savings, retirement savings withdrawal, retirement withdrawal tax table, tax

Now, as per your instance, the South African Income Service (Sars) will calculate your taxable lump sum by including earlier withdrawals to your retirement withdrawal.

On this case, you may be taxed on a lump sum of R1 100 000 (R600 000 plus R500 000). Thus, you’ll pay R148 500 tax on the withdrawal.

That is the hazard for individuals who withdraw their funds earlier than the age of 55, as they lose half or entire of their R500 000 tax-free portion.

Retirement tax table,

Retirement annuity tax reduction is ready to a most fee of 27.5% of the larger of your taxable earnings or remuneration right into a retirement annuity funding. That is topic to an annual restrict of R350 000. Quantities that aren’t claimed as a deduction in any yr of evaluation (on account of the limitation) are compounded.

When the person retires, for instance, the compounded or extra contributions that didn’t beforehand rank for deduction or which weren’t exempted can be utilized to cut back the gross lump sum determine on which the tax shall be calculated.

You may ask for a tax simulation from the pension/provident/retirement annuity fund earlier than making a withdrawal. This info is available to you upon your request.

You additionally referred to tax on the annuity earnings. Annuity earnings from a dwelling/life annuity shall be taxed in response to the pay-as-you-earn tax tables or your tax directive (in case you have one).

When you’ve got any questions, be at liberty to contact me or your monetary advisor.

Get pleasure from your retirement!

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Expensive reader,

Thanks on your query.

To finest reply your query, we’ll present a proof as to how the withdrawal tax desk and retirement tax desk have an effect on the tax payable within the occasion of your resignation and/or your retirement.

When leaving your employer fund earlier than age 55, you’re given an choice to take a money portion from the fund, and this money portion could also be as much as 100% of the fund worth. The lump sum money quantity that you just elect to take as a money withdrawal is taxed in response to the withdrawal tax desk beneath, the place the primary R25 000 is taxed at 0%.

Taxable earnings (R)​Price of tax (R)​
1 – 25 000​​0%
​25 001 – 660 000​18% of taxable earnings above 25 000
​660 001 – 990 000​114 300 + 27% of taxable earnings above 660 000
​990 001 and above​​203 400 + 36% of taxable earnings above 990 000

At your retirement, it’s possible you’ll then retire from the fund, and it’s possible you’ll take as much as one-third in money whereas two-thirds have to be used to buy an annuity.

At retirement, the money portion elected is taxed on the retirement tax desk beneath, the place the primary R500 000 is taxed at 0%. The earnings drawn from the annuity is included in your taxable earnings for the tax yr.

Nonetheless, earlier withdrawals, money commutations on retirement and severance funds have an effect on your subsequent money lump sum taken at retirement.

Prior withdrawal advantages taken from retirement funds after 1 March 2009, retirement fund lump sums taken on retirement after 1 October 2007, and any severance funds acquired after 1 March 2011, are aggregated for the calculation of the money lump sum taken at retirement.

Taxable earnings (R)​Price of tax (R)
1 – 500 000​​0% of taxable earnings​
​500 001 – 700 000​​18% of taxable earnings above 500 000
700 001 – 1 050 000​​​36 000 + 27% of taxable earnings above 700 000
​1 050 001 and above​130 500 + 36% of taxable earnings above 1 050 000

An instance 

If a person leaves an employer fund on or after 1 March 2009 and elects to take a money portion of R500 000, the R500 000 shall be taxed in response to the withdrawal tax tables. Assuming that this particular person retires at a later stage from their retirement fund and elects to take R500 000 as a money quantity, this lump sum shall be taxed in response to the retirement tax tables. Nonetheless, the prior withdrawal of R500 000 shall be included within the calculation and, due to this fact the tax payable can be on R1 million and there must be tax payable of roughly R117 000.

Most service suppliers provide to run a tax directive simulation earlier than making a remaining election, and the directive will point out the tax payable to Sars do you have to want to take a money portion at retirement.

This fashion you’d be capable of know if there’s any tax payable – and is advisable, since after you have made an election it’s remaining. It is strongly recommended that you just have interaction together with your monetary advisor that will help you make well-informed choices and make sure that you’ll be able to meet your retirement goals whereas remaining as tax environment friendly as doable.

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