By Angus Macmillan
Pretoria, Feb 22 - As flagged by the Treasury in last year's Budget, major changes to the taxation of retirement contributions are being implemented, but only from March 1, 2014 and not from March this year as was stated in last year's Budget.
According to the Budget Review document, tax-free deductions for individuals will be set at 22.5% and 27.5% for those below 45 and above 45 years old respectively, based on the higher of employment or taxable income.
Annual deductions will be limited to R250,000 and R300,000 for taxpayers below 45 and above 45 respectively.
The two year delay in the implementation of these proposals will be a major blow for many people nearing retirement - particularly self employed people who are currently limited to 15% of the taxable income as a retirement contribution tax deduction.
Meanwhile, a monetary threshold of R20,000 will apply to allow low-income earners to contribute in excess of the prescribed percentages.
Non-deductable contributions (in excess of the thresholds) will be exempt from income tax if, on retirement, they are taken as either part of the lump sum or as annuity income. Measures to address some of the complexities of defined benefit pension schemes will also be considered.
In addition, a rollover dispensation similar to the current retirement annuity contributions will be adopted to allow flexibility in contributions for those with fluctuating incomes. Contributions towards risk benefits and administration costs within retirement savings will be included in the maximum percentage allowable deduction.
The Treasury also said that consultations would be held with interested parties on a uniform approach to retirement fund withdrawals, taking into account vested rights and "appropriate transitional arrangements". Lump sum withdrawals from pension and retirement annuity funds upon retirement are currently restricted to a maximum of one third of accumulated savings.
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