Fact File: Taxes on retirement fund lump-sum benefits

TAXES ON RETIREMENT FUND LUMP-SUM BENEFITS

There are two tables for tax on lump-sum retirement benefits. The first gives the tax you pay if you cash in your retirement savings when changing jobs. It also applies to couples getting divorced where one spouse is paid out a portion of her partner’s retirement benefit.

TABLE 1: PRE-RETIREMENT LUMP-SUM WITHDRAWAL

R0 to R25 000 0%

R25 001 to R660 000 18% of amount above R25 000

R660 001 to R990 000 R114 300 + 27% of amount above R660 000

R990 001 and above R203 400 + 36% of amount above R990 000

The second table gives the tax you pay on the lump-sum portion of your savings at retirement. This lump-sum can be up to a third of your total retirement savings; the rest must be used to buy a pension. This table also applies to severance benefits when you have been retrenched, subject to certain conditions.

TABLE 2: LUMP SUM AT RETIREMENT/SEVERANCE BENEFIT

R0 to R500 000 0%

R500 001 to R700 000 18% of amount above R500 000

R700 001 to R1 050 000 R36 000 + 27% of amount above R700 000

R1 050 001 and above R130 500 + 36% of amount above R1 050 000

As one can see, the first table is far more onerous than the second. On R1 million, for example, a pre-retirement withdrawal will cost you R207 000 in tax. On a lump sum at retirement, the tax will be a great deal less: R117 000.