Can I stagger my pension payout? | Fin24
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Can I stagger my pension payout?

Apr 30 2013 14:02
A Fin24 user who is retiring from government service after 35 years wants to know if she can stagger her pension payout. She writes:

I am a medical specialist with 35 years’ service and will be retiring from government service next year. I will have a gratuity of R1.5m available.

Am I allowed to take only the tax-free portion initially and later, say in two years’ time, the balance to avoid a high tax rate, as I will be earning in the first year of retirement?

Andries Cilliers, financial planning analyst for Senior Market Advice at Sanlam, responds:

At retirement from the GEPF, the full cash lump sum must be taken immediately. It cannot be "staggered".

Tax will be payable according to the retirement scales for cash taken from approved funds.

As you have service years prior to March 1 1998, the taxable portion of the cash lump sum will be calculated by using the formula of Paragraph 2A (the former Formula C).

Paragraph 2A provides that where any lump sum is received or accrues from a public sector fund, the amount to be included in the gross income of any person in terms of paragraph (e) is deemed to be determined in accordance with the following formula:

    A = B/C x D where
    A = amount to be determined
    B = Membership after March 1 1998
    C = Total membership
    D = Lump sum payable to the person
Here is an example:

If your total years of full service at retirement are 35, of which 16 were after March 1 1998 (let us assume the retirement is later than March 1 2014), only 45.714% (i e 16 ÷ 35 x 100%) will be subject to tax - thus ± R685 714 if the total lump sum is R1.50m.

R315 000 of this amount will be tax free due to the normal tax tables, R315 000 will be taxed at 18% and the balance of R55 714 will be taxed at 27% (assumed that no cash was taken at retirement from other approved funds after Octob 1 2007).

Tax of ± R71 743 [i e (R315 000 x 18% + (R55 714 x 27%)] will be payable and the net after tax lump sum will be ± R1 428 257 (i e R1 500 000 - R71 743).

 - Fin24

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retirement  |  money clinic


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