Your retirement planning, sorted

While most South African taxpayers are aware that they have a full tax record registered on the South African Revenue Service (Sars) system, few realise how important this record is for use in developing a comprehensive retirement plan. Here’s how to access the record and reap the benefits.

Did you know there are limited expiry dates applicable to previous withdrawal, retirement, income or death taxes due or payable on your record at Sars? You may not remember a pension payout that you took in cash during your youth, to cite just one example, but the tax applicable on this and other retirement funds can make a massive difference to the income available to you, to draw, if you need to supplement your post-retirement income.

The income you draw from cash lump sums (referred to as discretionary funds) can supplement post-retirement income needs free of income tax, while income drawn from the remaining capital (such as that kept in a living or life annuity) is fully taxable. Note that income tax, in this context, has a direct correlation with retirement asset withdrawals – and tax on interest may still be applicable.

The question is, how do you gain access to your tax history so that your financial planner can help you to accurately gauge the after-tax funds available to you?

Gravitas Tax has developed a fintech tool that allows you to access your information by means of a tax directive simulation, which can be drawn up via integration with Sars. All your financial planner needs to do is enter your full registered first names, surname, ID number and South African tax reference number into the tool. If you don’t have a financial planner, Gravitas Tax will be happy to offer you a referral.

Uncovering tax-free savings

As an example of how this tax tool works, let’s look at the case of Clive Adams, 58, who worked as a bookkeeper for eight years while completing his studies and articles. He was a member of a corporate pension fund for eight years, with he and his company contributing about 10% of his gross salary to the fund.

Clive was retrenched but received a much better job offer as a chartered accountant. He went on to become a director of the company. However, as he approached retirement, his financial planner advised him he was entitled to a tax-free amount of only R500 000 on retirement. This wasn’t correct, however.

What Clive didn’t know was that he had over-contributed to his pension fund, thanks to his work package, and had accumulated excess contributions. He approached a financial adviser who uses the Gravitas Tax tool; and discovered that he had R4 million in excess contributions and could therefore withdraw this amount completely tax-free.

In addition, because he had been retrenched at his former company, and had withdrawn an amount at the time, his financial planner was able to save him a lot of tax by taking this withdrawal into account along with the excess contributions. This meant his marginal tax rate on retirement was lower than anticipated. His concerns about being short of cash to provide for liquidity in retirement – or being able to settle his outstanding debt – were therefore put to rest.

Aiding retirement planning

Without Clive or his financial planner’s awareness of and use of the Gravitas Tax tool, the benefits and restrictions listed above may not have been clear; and an inaccurate picture may have been created of his true financial status on retirement.

The Gravitas Tax tool can provide an accurate picture of your tax situation, while also saving you time and money. It’s a key tool in a financial planner’s toolbox to help clients develop a successful retirement plan during pre- and post-retirement life stages.

Wouter de Witt is from Gravitas Tax.