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How To Calculate Pension Fund Contribution In South Africa?

Introduction

Pension funds are a long-term savings plan designed to give you an income in retirement. South Africa has legislation that requires employers to put aside money into a pension fund for their employees, and the amount is based on the employee’s salary. Calculating your pension fund contributions can be confusing and complicated, but it doesn’t have to be! In this article we will take a look at how you can calculate your own pension fund contribution in South Africa.

Calculating Pension Contributions with Employer

If you are employed, then your employer will make contributions towards your pension fund on your behalf. The amount of these contributions is determined by the law and typically ranges from 7% – 12%. Your employer should provide you with information about how much they are contributing as well as when payments need to be made each month or year so that all legal obligations are met. You may also receive additional benefits such as life insurance coverage if offered by your employer, which could increase the overall value of what they contribute towards your pension fund over time.

Contribution Limits

The maximum allowable annual contribution limit set out by regulations is 15% of taxable earnings or R350 000 per annum (whichever is lower). This means that if you earn more than R350 000 per annum then only 15% of those earnings can go towards funding your retirement savings account each year without incurring any tax penalties from SARS . Any additional amounts beyond this threshold will incur taxation at marginal rates applicable for the period during which it was earned.

Tax Relief

You may qualify for tax relief depending on certain factors including age; type of job; whether or not there were any withdrawals taken within last three years etc.. Tax reliefs reduce the total amount paid into pensions funds due to exemptions/deductions allowed under Income Tax Act No 58 of 1962 section 10(1)(xvi). These include: up to 27½ % deductions against taxable income subject to limits prescribed in each financial year; special provisions regarding disability and death benefit claims; bonuses granted upon reaching age 55 etc…

Retirement Annuities & Provident Funds

Retirement annuities (RAs) and provident funds both provide excellent options for saving towards retirement goals but come with different advantages depending on individual circumstance i.e., Retirement Annuities offer higher returns when compared against traditional bank accounts however attract higher taxes whereas Provident Funds enjoy favourable tax treatment but don’t offer same level return potential over longer term investments like equities/shares markets etc… It would therefore depend solely on individual preference which route one decides upon taking given respective risk appetite profile , investment horizon timeline amongst other key parameters .

Conclusion

In conclusion, understanding how much goes into securing one’s future after retirement can help individuals plan better now while still enjoying present day lifestyle choices accordingly . Knowing exact figures involved alongwith associated restrictions/tax implications helps people understand importance attached with investing sufficiently aheadtime so as not get caught offguard once time comes closer near actual date wherefrom regular paychecks stop coming yet necessary expenses do continue running uninterruptedly !

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