Retirement Lump Sum Contribution – Why Now?

Now is the perfect time to make a Retirement Lump Sum Contribution.

Tax Benefit of Retirement Contributions Explained:

South Africans are allowed a tax deduction for contributions to Retirement Funds. These contributions are limited to the higher of:

  • 27,5% of Remuneration, OR
  • 27,5% of Taxable Income

This amount is limited to R 350 000 per annum. Excess contributions may be carried forward to the following tax year, subject to limitations.

Retirement Funds include:

  • Pension Funds
  • Provident Funds
  • Retirement Annuity Funds 

Another benefit that makes Retirement Funds a highly tax-efficient investment, is that no tax is levied on the build-up of capital within the fund. That means that the fund does not pay tax on the interest earned, dividends received or capital gains from the fund’s underlying assets.

For more information, see p.6-7 of the SARS pocket tax guide.

Retirement Lump Sum Contributions In SA Economy

Consider the following:

  • Investment experts expect a turnaround in the SA economy and growth in the long term. If you buy now, while markets are low, you’ll get good value stocks at a low price.
  • A Retirement Lump Sum Contribution will reduce your Pay-As-You-Earn (PAYE). This will provide immediate tax relief of up to 45%, depending of course on your marginal tax rate.
  • Business owners can structure their income to reduce Personal Income Tax and Company Tax. Contact one of our advisers for assistance.
  • Do not panic when negative sentiment and media causes chaos. Remember that in the storm lies the opportunity.
  • The certainty of paying less tax and investing while markets are low is enough benefit to retain/grow your Retirement Funds 
  • Amidst the economic uncertainty, you can capitalise by seizing the opportunity to contribute to a lumpsum Retirement Annuity.

A Practical Example For Business Owners:

If you earn R1.5M, you can deduct the maximum contribution of R 350 000.

Option 1:You can leave the R 350 000 in the company. You will then pay Company Tax of R98 000 (28% x R 350 000).

Option 2: Take the R 350 000 as part of your salary. You will then pay income tax of R532 041

Option 3: Take the R 350 000 as part of your salary and contribute it to a Lump Sum Retirement Annuity. Your income tax will then be R388 541.  

Option 3 is the obvious choice. You will then save R 143 500 in Personal Income Tax, and R 98 000 in Company Tax.

Current Special Offers 

Old Mutual: 5% of the initial investment amount will be
added to your investment upfront.

Minimum Contribution: R 50 000

Discovery: You can get a boost of up to 29% to your investment in qualifying Discovery Funds.

Minimum Contribution: R 60 000 (Older than 30), OR

R 5 000 (Younger than 30)

Set up an appointment with one of our Independent Financial Advisers now to capitalise on this opportunity BEFORE 29 FEBRUARY 2020. 

Phone: +27 21 914 7480
Cell: +27 82 893 2795

For more relevant financial information, advice and tips, follow us on:


Related Articles