Topping up your retirement annuity before the end of the tax season has some major financial benefits and will give any taxpayer a reason to smile in 2018.
This according to Tandisizwe Mahlutshana, Executive of Marketing at PPS Investments, who adds that individuals who want to maximise their tax rebates, need to act as soon as possible. “The current tax season ends on 28 February 2018, so the opportunity for individuals to squeeze more out of their tax returns is very quickly coming to an end.”
Mahlutshana says that it is currently estimated that only about 6% of all South Africans are able to retire comfortably. “In order to improve this worrying statistic, Government offers great incentives for taxpayers to contribute towards their retirement nest egg. We believe that educating consumers will help to substantially increase the number of people who can retire in future.”
What is a retirement annuity?
Mahlutshana says that a retirement annuity is still one of the best ways to save money for retirement. “An annuity is essentially an insurance product that you can use as part of your retirement strategy. It allows you to receive a steady monthly income after you have stopped working.”
He explains that a retirement annuity is a good way to save if a person does not already contribute to a company retirement fund. “You can also take out an annuity even if you are already making use of a company provident fund or other savings vehicle. It will help you to supplement your retirement income and is a vital tool for people who are only able to start saving for retirement later in life.”
What are the tax benefits of saving towards retirement?
At the end of the tax season, individuals can include retirement annuity contributions on their tax return forms and receive a rebate from SARS. “SARS has made it a priority to incentivise South Africans to make adequate provision for their retirement, which is why retirement annuities now offer individuals a number of significant tax breaks. Firstly, a percentage of the money that you invest throughout the year can be claimed back from SARS at the end of every tax season, and any returns on investments that are generated by an annuity are not subject to tax.”
Mahlutshana explains that SARS has recently increased the amount that individuals can claim back from tax if they invest in annuities. “Since the 2016 tax year, SARS has made it possible for individuals to invest up to 27.5% of their annual income in a retirement annuity. Taxpayers can claim those contributions back on their tax return, up to a maximum tax deduction limit of R350 000. This allows a lot more room to increase your retirement contributions.”
With the end of the current tax season nearing, Mahlutshana explains that individuals still have an opportunity to maximise their savings and tax rebates if they move quickly. “Everyone should take a look at their annual salary, calculate the percentage they have already paid into their retirement annuities for the current tax year, and then make a lump sum payment into their annuities to get them as close to the 27.5% mark as possible.”
According to Mahlutshana, individuals with the means to do so can even consider paying a higher percentage of their salary into their retirement annuity. “While it is true that you cannot claim back more than 27.5% of your annual salary from SARS when it comes to retirement annuities, SARS has made one more benefit available to taxpayers. If you pay more than the permitted annual contribution in a tax year, you are allowed to claim the remaining percentage back in the following year. So, if you invest 35% of your annual income in your annuity, SARS allows you to claim back 27.5% this year, and add the remaining 7.5% to your following year’s tax return.”
Use your tax free savings account
Lastly, one more financial vehicle that every South African has to take advantage of, he says, is the tax free investment account. “It is something that we encourage every South African to use. It allows you to save money with zero tax on investment income or growth and you can invest up to R33 000 per tax year until you reach the lifetime limit of R500 000. While it should not be your sole source of retirement savings, it is one of the best ways to boost your nest egg with a lump sum.”
To encourage individuals to top-up their retirement annuities before the end of the current tax season PPS Investments recently launched its #reasontosmile campaign. The campaign practically demonstrates the payback that taxpayers can expect from topping up their annuities, giving them a reason to smile. To find out more about the campaign visit www.reasontosmile.co.za.