A big pensioner tax change has hit South Africa
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The South African Revenue Service (SARS) has introduced new regulations for pensioners in South Africa which has generated a significant amount of concern due to a change in payments.
For a pensioner who receives their income from only one source, e.g. a pension fund or an annuity that has been purchased with a registered provider, SARS ensures that the correct PAYE deductions are made from the monthly pension, explains Belinda Sullivan, head of corporate consulting Strategy at Alexander Forbes.
“But many pensioners may have more than one source of income, she said. For example, you may be receiving your monthly pension, rental income from a property and perhaps other income that you may have from another policy.
These different sources of income are added together at the end of the tax year to calculate the correct tax that must be paid.
“As a result, this may result in you being placed in a higher tax bracket compared to the amount of tax that has been paid to SARS at the end of the tax year. So what this effectively means is that the PAYE currently paid may not be in line with what is due to SARS – which means you will need to pay in additional money to SARS to meet your tax that is due.”
Pensioners can ask the pension fund administrator to deduct a higher amount of PAYE to better align the tax payments they make with the tax due at the end of the tax year, Sullivan said, adding that not many pensioners were making use of this option, resulting in a tax debt at the end of the year.
With effect from 1 March 2022, SARS introduced legislation that allows it to determine a more accurate PAYE deduction amount.
A fixed-rate is calculated based on the information that SARS has on hand. the revenue service has confirmed the fixed rates of PAYE to be deducted from the pensions or annuities.
A pensioner has the option to “opt-out” and maintains the current level of taxation. This means that the pensioner could end up having to pay additional tax at the end of the tax year.
Alternatively, the administrator can apply the fixed rate as advised by SARS, which should ensure that there is no additional tax debt at year-end.
A pensioner can opt out of this approach at any time, by confirming their selection, in writing, to the retirement fund administrator. Pensioners must be reminded that this may result in them having to pay into SARS at the end of the tax year.
“Many pensioners have therefore seen an adjustment to their monthly pension now due to the change in their tax deduction, based on the fix rates of PAYE that have been communicated by SARS for the year – if they have not ‘opted-out’ of the revised tax adjustments to take into account more than one source of income,” said Sullivan.
“If you are not sure how this affects you as a pensioner, it is important to contact your financial advisor and or your pension fund administrator.”
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