Corporate & Commercial Law Department
There are two basic annuity options available on retirement, being a traditional guaranteed life annuity and a living annuity. To the extent that a retirement fund member receives a portion of his fund interest in the form of a lumpsum, that lumpsum will be subject to tax as per the retirement lumpsum table (in the case of retirement) and the withdrawal tax table (in the case of withdrawals).
In calculating the tax due on such lumpsums, an exemption is provided to the extent that the member has made non-deductible retirement contributions in the past. Unlike the case of lumpsum benefits, no relief is available in respect of non-deductible retirement contributions for annuity payments.
It is proposed in the Draft Taxation Laws Amendment Bill of 2012 that non-deductible contributions to retirement funds will be exempt from income tax in respect of retirement benefits, regardless of whether these benefits are withdrawn in the form of lumpsum or by way of a compulsory annuity.
It is proposed that this amendment be effective for all receipts and accruals of lumpsums or annuities from 1 March 2013.