The difference between Pension Funds, Provident Funds and Retirement Annuities.
5.8 هزار بار بازدید -
4 سال پیش
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This is an episode-based series
This is an episode-based series where I will be walking through all of the aspects of retirement in South Africa, and explaining them. In today’s episode we will be discussing the main difference between pension, provident and retirement funds in South Africa.
Pension funds.
You can only join a pension fund through a company that employs you. With a pension fund, your money is managed by the trustees of your pension fund, and they decide which assets to include in the fund. Your contributions to the pension funds, and, your employers’ contributions, are tax deductible. When you retire, you may take up to a maximum of one third of your savings in a cash lump sum. This cash lump sum is taxable. The balance must be used to purchase an income annuity, it is extremely important to know that the income annuity is taxable just like a salary is taxable. If your total retirement interest in the fund is less than R247500 you are not limited to taking only one third of your savings as a lump sum, you can take the full amount as a cash lump sum, subject to tax.
If you leave a company before you retire, example where you resign, you have the following options. Either you can keep the money in the fund if the fund allows it, or you can move your retirement savings out of the company fund. The destination options for the balance may be, your new company’s fund, a preservation fund, a retirement annuity fund or take a cash payout. Please note that the cash payout will be subject to tax on the lump sum tax table. The growth and income within your fund while you are a member of the fund is tax free. Tax is only payable when you access your funds as discussed above.
Provident funds
A provident fund is different to a pension fund, in that you are able to withdraw the entire savings amount as a lump sum when you retire. Government is intending to align the benefits of provident funds to those of pension and retirement annuity funds. This means that provident funds will ultimately be essentially identical to pension funds. The result is that you will only be able to withdraw a third of your provident fund savings as a lump sum upon retirement, while the rest has to be invested in an income annuity fund that pays you a monthly income. However, this legislation has not been applied, and has been postponed. For now, one can withdraw the entire amount.
If you leave a company before you retire, example where you resign, you have the following options. Either you can keep the money in the fund if the fund allows it, or you can move your retirement savings out of the company fund. The destination options for the balance may be, your new company’s fund, a preservation fund, a retirement annuity fund or take a cash payout. Please note that the cash payout will be subject to tax on the lump sum tax table. The growth and income within your fund while you are a member of the fund is tax free. Tax is only payable when you access your funds as discussed above.
Retirement Annuituties (RA)
With, a retirement annuity, you also make monthly contributions, usually via debit order, but this is completely independent from your employer. You can choose what funds you invest this money in (within the limits set out by the retirement fund regulations). Meaning, with the help of an experienced investment specialist, the investor can invest in wide variety of funds, from shares, professionally known as equities, bonds, cash, such as money market accounts, and property.
When you retire, at age 55 or older, you’re allowed to take a maximum of one third as a cash lump sum (the cash lump sum is taxable) and the balance must be used to purchase an income annuity. If your total retirement interest in the fund is less than R247500, you are not limited to taking only one third of your savings as a lump sum, you can take the full amount as a cash lump sum, subject to tax. A bonus of a retirement annuity is that if you change jobs, it makes no difference to your retirement annuity, it will just continue as normal.
Your employer’s contribution to your retirement fund, is a fringe benefit, taxed in your hands. Your own contributions to your retirement fund, plus your employers contributions to your retirement fund, are tax deductible up to certain limits, in your hands. The growth and income within your fund while you are a member of the fund is tax free. Tax is only payable when you access your funds as discussed above.
Transfers
The Income Tax Act allows transfers from a pension or provident fund to a retirement annuity fund, pension preservation or provident preservation fund on or after reaching normal retirement age, as defined in the rules of the fund, but before retirement date. It is important to note that the single allowable withdrawal applicable to preservation funds will not apply to this transfer to a pension preservation or provident preservation fund.
Pension funds.
You can only join a pension fund through a company that employs you. With a pension fund, your money is managed by the trustees of your pension fund, and they decide which assets to include in the fund. Your contributions to the pension funds, and, your employers’ contributions, are tax deductible. When you retire, you may take up to a maximum of one third of your savings in a cash lump sum. This cash lump sum is taxable. The balance must be used to purchase an income annuity, it is extremely important to know that the income annuity is taxable just like a salary is taxable. If your total retirement interest in the fund is less than R247500 you are not limited to taking only one third of your savings as a lump sum, you can take the full amount as a cash lump sum, subject to tax.
If you leave a company before you retire, example where you resign, you have the following options. Either you can keep the money in the fund if the fund allows it, or you can move your retirement savings out of the company fund. The destination options for the balance may be, your new company’s fund, a preservation fund, a retirement annuity fund or take a cash payout. Please note that the cash payout will be subject to tax on the lump sum tax table. The growth and income within your fund while you are a member of the fund is tax free. Tax is only payable when you access your funds as discussed above.
Provident funds
A provident fund is different to a pension fund, in that you are able to withdraw the entire savings amount as a lump sum when you retire. Government is intending to align the benefits of provident funds to those of pension and retirement annuity funds. This means that provident funds will ultimately be essentially identical to pension funds. The result is that you will only be able to withdraw a third of your provident fund savings as a lump sum upon retirement, while the rest has to be invested in an income annuity fund that pays you a monthly income. However, this legislation has not been applied, and has been postponed. For now, one can withdraw the entire amount.
If you leave a company before you retire, example where you resign, you have the following options. Either you can keep the money in the fund if the fund allows it, or you can move your retirement savings out of the company fund. The destination options for the balance may be, your new company’s fund, a preservation fund, a retirement annuity fund or take a cash payout. Please note that the cash payout will be subject to tax on the lump sum tax table. The growth and income within your fund while you are a member of the fund is tax free. Tax is only payable when you access your funds as discussed above.
Retirement Annuituties (RA)
With, a retirement annuity, you also make monthly contributions, usually via debit order, but this is completely independent from your employer. You can choose what funds you invest this money in (within the limits set out by the retirement fund regulations). Meaning, with the help of an experienced investment specialist, the investor can invest in wide variety of funds, from shares, professionally known as equities, bonds, cash, such as money market accounts, and property.
When you retire, at age 55 or older, you’re allowed to take a maximum of one third as a cash lump sum (the cash lump sum is taxable) and the balance must be used to purchase an income annuity. If your total retirement interest in the fund is less than R247500, you are not limited to taking only one third of your savings as a lump sum, you can take the full amount as a cash lump sum, subject to tax. A bonus of a retirement annuity is that if you change jobs, it makes no difference to your retirement annuity, it will just continue as normal.
Your employer’s contribution to your retirement fund, is a fringe benefit, taxed in your hands. Your own contributions to your retirement fund, plus your employers contributions to your retirement fund, are tax deductible up to certain limits, in your hands. The growth and income within your fund while you are a member of the fund is tax free. Tax is only payable when you access your funds as discussed above.
Transfers
The Income Tax Act allows transfers from a pension or provident fund to a retirement annuity fund, pension preservation or provident preservation fund on or after reaching normal retirement age, as defined in the rules of the fund, but before retirement date. It is important to note that the single allowable withdrawal applicable to preservation funds will not apply to this transfer to a pension preservation or provident preservation fund.
4 سال پیش
در تاریخ 1399/06/31 منتشر شده
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