Resignation benefits
If you take benefits from the Fund in the form of resignation benefits, the tax treatment of these depends on how you choose to receive your benefit. If you transfer the benefit to another fund, you should not be subject to any tax at the time of transfer. However, if you take your benefit (up to the maximum permitted amount) as a cash resignation benefit, it will be taxed. (Please see the page called "What benefits you will receive on resignation" on the Fund Benefits tab, for an explanation of the amount that you are permitted to take in cash as part of a resignation benefit.)
Taxation of any cash resignation benefit taken from your Vested Pot
(See the page called "The design of the Fund" under the Fund Benefits tab, for an explanation of the three "Pots".)
The tax-free amount in respect of resignation benefits (referred to as “withdrawal benefits” by SARS) is R25 000. However, the R27 500 is a 'once-off' cumulative value (a lifetime allowance), and once the limit of R27 500 is reached, all further resignation benefits will be taxed.
It is very important also to note that the tax-exempt resignation benefit amount of R27 500 reduces the once-off tax exempt amount of R550 000 at retirement.
SARS states that “the tax on a specific retirement fund lump sum withdrawal benefit (X) is equal to–
“the tax determined by applying the tax table to the aggregate of that lump sum X plus all other retirement fund lump sum withdrawal benefits accruing from March 2009 and all retirement fund lump sum benefits accruing from October 2007; minus
“the tax determined by applying the tax table to the aggregate of all retirement fund lump sum withdrawal benefits accruing before lump sum X from March 2009 and all retirement fund lump sum benefits accruing from October 2007.”
The tax table as from 1 March 2023 is as follows:
| Taxable income (R) | Rate of Tax (R) |
|---|---|
| R0 to R27 500 | 0% |
| R27 501 to R726 000 | 18% of the benefit amount exceeding R27 500 |
| R 726 001 to R1 089 000 | R125 730 + 27% of the amount above R 726 000 |
| R 1 089 001 and above | R223 740 + 36% of the amount above R 1 089 000 |
Taxation of any cash resignation benefit taken from your Savings Pot (from September 2024 onwards)
If you take part or all of your Savings Pot balance as a cash benefit on resignation (and you may not be permitted to do this - see the page called "What benefits you will receive on resignation" under the Fund Benefits tab), this cash benefit will be taxed in the same way as a Savings Pot withdrawal made while you are still in office (still a contributing member of the Fund).
This means it will be taxed as income, at your marginal tax rate.
Disclaimer
In providing the material that follows, the Fund has tried to reflect the tax treatment of contributions and benefits accurately at the time of writing, but the Income Tax Act is very complicated and is subject to regular changes. In the event that the following material conflicts with the Income Tax Act, the Act will apply. Because the Income Tax Act is so complicated, it is very important that you seek specialist advice if you have questions about taxation of your retirement benefits and when you have to make decisions, for instance about the form of the benefit that you take after you leave office.