Taxation of the cash lump sum payment

All retirees are eligible for a tax-free lump sum of R550 000. In addition to this tax-free amount, retirees who were members of the Fund prior to 1 March 1998, will retain their favourable tax status applicable to “paragraph A” Funds. The formula for calculating the tax-free lump sum benefit for those members who joined prior to 1 March 1998  is rather complex and will be calculated for you at the time of your retirement.

Any part of your lump sum benefit that is subject to tax, will be taxed as follows:

Taxable Amount	Rate of Tax
R0 to R550 000	0%
From R550 001 to R770 000	18% of taxable income exceeding R550 000
From R770 001 but not exceeding R1 155 000	R39 600 plus 27% of taxable income exceeding R770 000
Exceeding R1 155 001	R143 550 plus 36% of taxable income exceeding R1 155 000

Taxation of your pension benefit

For the 2023/2024 tax year, the following tax thresholds apply:

• If you are under the age of 65 and your total income is less than R95 750 per annum you will pay no tax.
• If you are aged 65 to 75 and your total income is less than R148 217 per annum, you will pay no tax.
• If you are aged 75 and older and your total income is less than R165 689 per annum, you will pay no tax.

Taxation of the cash lump sum payment

Taxation of death benefits is treated on the same basis as taxation on retirement.

Taxation of your beneficiaries pension benefit

Your beneficiaries will pay tax in the usual way on the monthly pension they receive.

The taxation of your resignation or dismissal benefit is rather complex and depends on how you elect to receive your benefit. In this regard you have the following options:

Taxation if you become a deferred pensioner

In this case no tax is payable at the time you elect to become a deferred pensioner. You will, however, pay tax on the benefit you ultimately receive.

Importantly if you elect this option you retain the favourable tax status applicable to paragraph (a) funds as described above.

Taxation of any cash benefit

The tax-free part of the cash part of your resignation or dismissal benefit is calculated as:

The number of completed years of service you had before 1 March 1998 ÷ the total completed years of service you have on exit X your resignation or dismissal benefit + the tax free portion as shown in the table below.

The tax on the taxable portion is calculated as per the table below: 

The tax-free amount in respect of resignation benefits (referred to as “withdrawal benefits” by SARS) is R27 500.  However, the R27 500 is a 'once-off' cumulative value (a lifetime allowance), and once the limit of R27 500 is reached, all further resignation benefits will be taxed.

It is very important also to note that the tax-exempt resignation benefit amount of      R27 500 reduces the once-off tax exempt amount of R550 000 at retirement.

SARS states that “the tax on a specific retirement fund lump sum withdrawal benefit (X) is equal to–

 

• “the tax determined by applying the tax table to the aggregate of that lump sum X plus all other retirement fund lump sum withdrawal benefits accruing from March 2009 and all retirement fund lump sum benefits accruing from October 2007; minus

 

• “the tax determined by applying the tax table to the aggregate of all retirement fund lump sum withdrawal benefits accruing before lump sum X from March 2009 and all retirement fund lump sum benefits accruing from October 2007.”

 

Taxable Amount	Rate of Tax
Up to R27 500	0%
R27 501 to R726 000	18% of the taxable income exceeding R27 500
From R726 001 to R1 089 000	R125 730 plus 27% of the amount above R726 000
R1 089 001 and above	R223 740 + 36% of the amount above R1 089 000