More Information About Pension fund and RA

Q: I am a 54-year-old male member of the Transnet Pension Fund. I recently responded positively to my employer’s advice for increasing monthly premiums. I have realised that Sars does not consider pension fund contributions for tax relief when submitting yearly returns. I am therefore thinking of reversing my decision, rather increase my Retirement Annuity, which I have with a financial institution, for tax returns purposes.

Please advise if it is a right decision.

A: As of March 1 last year, irrespective of whether you have a pension, provident or retirement annuity (RA), you will qualify for a tax deduction of up to 27.5% of your taxable income (subject to a maximum of R350 000 per year). This limit applies to the total contributions you make to all retirement funds in the tax year.

Prior to March 1 2016, members could get a deduction of up to 7.5% on their own contributions, and no deduction on their employer contribution. Post 1 March 2016, you will now pay fringe benefit tax on the employer contribution, but at the same time get a deduction on both your own and your employer’s contribution by way of a reduction in taxable income, subject to the limits referred to above. This will leave you in the same position as before March 1 2016, as long as your contribution is below the limits mentioned above. By increasing your contribution to the employer pension fund, you get the benefit of the effective tax deduction monthly and you won’t have to wait until you file your tax return (as is the case if you contribute to your own RA).

I would advise you to speak to someone in your HR/payroll department as you should be receiving the full tax deduction for the total contributions if they are below the limits mentioned above. Any contributions in excess of these limits will be carried into the next tax year.