Comparison of Retirement Funds 25 March 2015

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1 Comparison of Retirement s 25 March 2015 Retirement s must apply to the Registrar of Pension s for registration under the Pension s Act. In order for the and its members to qualify for various tax concessions the must also be approved by the Commissioner for the South African Revenue Service (SARS). What follows is a short summary of the main features of pension s, provident s, pension preservation s, provident preservation s and retirement annuity s that have been registered and approved as aforementioned. Pension- and provident s Membership of a pension or provident is a condition of employment of many employers and their primary purpose is to provide retirement benefits to employees when they retire. Pension- and provident preservation s The purpose of preservation s is to preserve the accumulated pension- or provident money of members until retirement. Retirement annuity s These s are primarily designed to provide retirement benefits to self-employed people although anybody can contribute to a retirement annuity even a person who belongs to his employer s pension or provident as well as a person who has already retired from employment. The accompanying tables compare some of the other features of the five types of retirement s with each other. The first table shows how the tax law works until 29/02/2016 and the second table shows how the tax law works from 01/03/2016. These dates could be delayed to 28/02/2017 and 01/03/2017 respectively should Government and NEDLAC not reach agreement on the proposed changes summarised in the second table, The position from 01/03/2016. Please note that the tables are summaries which by its very nature do not include the precise wording and construction of sentences of complicated legislation which could lead to wrong inferences. Therefore, please contact your Sanlam advisor or broker before you make any decision based on the information in the tables.

2 Main heading The position until 29/02/2016 Deduction of contributions Date of document Pension Provident Pension Preservation Provident Preservation Retirement Annuity allowed in respect of member contribution Maximum deductible is the greater of: R1 750 or 7,5% of pensionable remuneration Member contribution not deductible retirement no other contributions are made to the No deduction for member Maximum deductible is the greater of: 15% of non-retirement ing taxable income (there are certain exclusions) R3 500 less deductible pension contribution R1 750 allowed in respect of employer contributions SARS allows 20% of the total remuneration which accrues to the employee in respect of his employment which SARS considers to be fair and reasonable. The 20% is the total for contributions to pension, provident and benefit s (e.g. medical scheme) in respect of an employee retirement no other contributions are made to the No deduction for employer Where an employer pays the retirement annuity contribution on behalf of its employee (member) it is a taxable benefit for the employee, but also with a deduction for the employee within the limits set out in the column above. The payment on behalf of the employee is a deductible expense for the employer Retirement date Specified in the rules of the Anytime from age 55 2

3 The position until 29/02/2016 Options at retirement Pension Provident Pension Preservation Provident Preservation Retirement Annuity Maximum 1 / 3 of the retirement benefit can be taken as a lump sum. The balance must provide a life-long The full benefit must be taken as a lump sum unless the rules of the give an option to take a The full benefit must be taken as a lump sum unless the rules of the give an option to take a Note: If the total value of the benefit does not exceed R75 000, the full benefit can be taken as a lump sum. 3

4 The position from 01/03/2016 Deduction of contributions Pension Provident Pension Preservation Provident Preservation Retirement Annuity allowed in respect of member contribution Maximum deductible in respect of one or more pension-, provident- and retirement annuity is 27.5% of the greater of: retirement no further contributions are made to the No deduction for member Remuneration* as defined in the 4 th Schedule of the Income Tax Act or taxable income* Subject to an overall cap of R per year *excluding any retirement lump sum benefit, retirement lump sum withdrawal benefit and severance benefit. allowed in respect of employer contributions Where an employer pays the pension or provident contribution for the benefit of its employee (member) it is a taxable benefit for the employee, but also with a deduction for the employee within the limits set out in the column above. The payment for the benefit of the employee is a deductible expense for the employer. The employer deduction is no longer capped. retirement no further contributions are made to the No deduction for employer 4

5 The position from 01/03/2016 Options at retirement Pension Provident Pension Preservation Provident Preservation Retirement Annuity Maximum lump sum: 1 / 3 of retirement interest but excluding the part thereof in 1 and 2 below if applicable. If there was a transfer from a provident : 1. contributions prior to 01/03/2016 to the provident plus growth can be taken as a lump sum. 2. for members aged 55 or older at 01/03/2016 contributions on or after 01/03/2016 made to such provident, plus growth can be taken as a lump sum. The balance must provide a lifelong Maximum lump sum: 1 / 3 of retirement interest but excluding the part thereof in 1 and 2 below if applicable. 1. Contributions prior to 01/03/2016 plus growth. 2. For members aged 55 or older at 01/03/2016 contributions on or after 01/03/2016 plus growth if made to the same provident of which he/she was a member on 1 March The balance must provide a lifelong Note: If the total retirement interest excluding the part of the interest in 1 and 2 above does not exceed R , the full benefit can be taken as a lump sum. 5