Pension, Provident and Retirement Annuity Funds – Post Budget 2016

The one change that let’s us have our cake and eat it too (tax free)

By David Crossley, Practice Manager at BDO Wealth Advisers

Whilst the COSATU protests against the proposed annuitisation of Provident Fund proceeds were successful, the other changes in the legislation have remained largely unchanged, presenting individuals with excellent opportunities for saving money through these vehicles.

This means that the full value of the Provident Fund can be taken at retirement (There may be tax implications on the withdrawal – which is currently the case) and there is no longer the ‘One third/two thirds’ requirement.

For those individuals currently in Provident Funds, their contributions will now be completely tax deductible up to a maximum of 27.5% of taxable income, but with a ceiling of R350 000.

Any contributions in excess of the R350 000 ceiling can be carried forward to the next tax year or be allowed to accumulate to be added to the tax free portion at retirement age. If you take into consideration that in addition to the tax deductibility advantages, that there is no tax on the accumulating proceeds, nor is there any Capital Gains implications.

The result is an investment for retirement that is not only tax effective from a deductible point of view, but has a “Clean” growth unaffected by tax or capital gains on the investment constituents. Talk about having your cake and eating it!