National Treasury this week announced changes to tax treatments of retirement fund contributions in provident, pension and retirement annuity funds, which will come into effect from March 2016. These are not the only amendments and most of the reforms are aimed to encourage South Africans to save money in their retirement funds.
People are not saving towards retirement, and when they can work no more, they are dependent on assistance from family members or government grants. South Africans are cashing in their retirement savings early to pay off or settle their debts and this poses a great danger to their future financial security.
The amendments will help people not choosing to receive their cash because they will have to pay tax on that amount. We advise employees changing jobs to carry on with the retirement fund when they switch jobs or invest the money in an annuity fund because no tax is applicable.
If someone changes jobs and chooses to cash in their retirement fund, they stand a chance to be dependent on credit when they retire. Many credit providers give credit to pensioners too easily and this is unethical.
Many employees are over-indebted and change jobs just to access their pension funds. Don’t run the risk of being unemployed just to get your savings, because you might not be able to find a job again. With unemployment rates at 25%, thousands of people apply for the same job as you, and you run the risk of not finding a job soon.
Consequences in Tax Deductions
Tax deduction benefits will be extended to employees who are members of provident funds; the tax-deductible contribution will be covered or restricted to 27.5% of the taxable income or R350 000 per year for high-income employees. Interest and dividends earned on pension and provident funds or retirement annuity will be relieved of tax.