Are you maximising your tax savings

he SA Revenue Service (SARS) allows tax deductions for contributions to a pension fund, provident fund or retirement annuity up to the value of 27.5% of the greater of your taxable income or remuneration capped to an annual ceiling of R 350 000.

Contribute to either the KZN Retirement Fund (Pension Fund) or KZN Provident Fund

The main difference between the pension and provident fund is the following:

• Under the pension fund, a maximum of one-third of the retirement benefit may be taken as cash and the balance of the retirement benefit must be paid as an annuity for the remainder of the pensioner’s life. If the total retirement benefit is under R247,500, the full amount may be taken in cash;

• Under a provident fund, the full amount of the benefit available at retirement may be taken as a lump sum cash payment.

The tax concessions on contributions made by employers and members in respect of the two types of funds differed prior to 1 March 2016. However, National Treasury amended this in 2016 with a view to the eventual full alignment of retirement benefit options in pension and provident funds.

The current tax deduction on contributions in detail

Any contribution that an employer makes on behalf of his/her employee is added to the salary for tax, ie as a fringe benefit. However, the employee can then deduct his/her contribution plus the employer contribution (up to a combined total of 27.5% of salary) and reduce his/her tax. High earners have this deduction capped at R350,000 per annum. This deduction is quite significant because instead of paying tax on 100% of your package (including the employer contributions) you only pay tax on 72.5% of your salary – quite a saving!

Niel Fourie, public policy actuary at the Actuarial Society of South Africa in a recent article published in Financial Mail illustrated how saving towards your retirement can reduce your tax cost. Put simply, here is how much you can save if you earn R25 000 a month:

• If you are contributing 10%, or R2 500, of your salary of R25 000 every month to a retirement fund, your monthly tax is R3 372 and your take home-pay is R19 128 (after tax and RA contribution),

• If you doubled your monthly contribution to the retirement fund to R5 000, your tax would drop by R650 and your take-home package to R17 278, a reduction of R1 850. In this case, the government is sponsoring an additional R650 towards your retirement savings.

• Over 12 months, your tax saving would amount to R7 800 and over 20 years to R286 927.61 (assuming a 6% salary increase every year and the tax brackets adjusting accordingly).

Government has made it easier for us to save for retirement. Let us to do more to plan for sustaining a better lifestyle in retirement.

Master Builders KwaZulu-Natal will be hosting an Open Day on 26 June 2018 at 40 Essex Terrace, Westville to give you an opportunity to meet the team and enquire about our amazing Fund offerings. Please contact our Employee Benefits Manager, Vishane Pramrajh on 031 266 3244 or email vishane@masterbuilders.co.za to find out more.

Vishane Pramrajh | Employee Benefits Manager