Tax increases to hit retirement savingsSouth African taxpayers now find themselves in unchartered territory with the Presidential Fiscal Committee (PFC). We all know tax increases are on its way, the question is which tax types and by how much. Although this will remain a closely kept secret, many will undoubtedly feel they should have planned better. © Karel Miragaya – 123RF.com Taxpayers with pre-tax retirement savings may be vulnerable for two reasons. 1. The below table shows the top marginal tax rates for retirement lumpsum withdrawal and personal income tax.
The comparison speaks for itself. Where the differential in 2013/14 was only 4%, it now stands at 9%. During the past years, the top personal income tax bracket more than doubled, from R638,600 to R1,500,000. Conversely, the top retirement tax bracket only moved 16.67% (from R900,000 to R1,050,00). These signal strong markers. 2. National Treasury confirmed during the August 2017 Parliamentary sessions, that the retirement tax reform, previously postponed, takes full effect 01 March 2018. This means one thing – compulsory preservation on retirement funding not previously accrued. The policy direction is clear. The fiscus, arguably correct for those vulnerable to premature retirement withdrawal, does not want encashment of retirement savings. An increase in tax rate will be consistent with this policy direction, thus making the encashment decision expensive. AlternativesThe difficult position for taxpayers, and their financial advisors, is not having the benefit of hindsight. Whilst it would almost always be a bad idea to leave employment just to access retirement funding, the following options ca should be given careful thought:
About the authorJerry Botha is a managing partner at Tax Consulting SA. | ||||||||||||||||||