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Matthew Lester ponders retirement: RA tax benefits vs offshore exposure?

Wednesday, 20 January 2016   (0 Comments)
Posted by: Author: Matthew Lester
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Author: Matthew Lester (

So we haven’t made it to February yet and tax expert Matthew Lester is back in the full swing of things. The new tax legislation has been discussed at length already and will require further discussion but there are a few more pressing demands at hand. Lester is however still pondering the idea of investing in a retirement annuity, especially given all that’s happened in South Africa in the last six weeks. It’s an interesting conundrum he finds himself in, does he take advantage of the retirement fund tax benefits, as submission dates draw to a close, or pass these off and invest offshore using the R10 million facility? In true Lester fashion, he takes the fifth amendment, saying he’ll wait until the last moment to decide. Deadline 31 January. – Stuart Lowman 

So it’s January. Holidays are over, except for paying the bills and participating in the back to school redistribution of wealth program.

Then comes making sure that your 2015 tax return is filed by 31 January. Followed shortly afterwards by the second provisional tax payment due end February.

And if you can stand it, part of the 2016 tax computation is the calculation and payment of your retirement annuity top-up contribution.

After that I think I’m going to need some of that new wonder drug Rupert Murdoch must be taking. I thought Jerry Hall was looking for someone 30 years younger. Perhaps she got a new stash from Mick.

Now for the 2016 tax year the famous NRFI retirement annuity calculation applies for the last time. The tax deduction on retirement annuity contributions is limited to the greater of:

  • R1750
  • R3500 less pension fund contributions or
  • 15% of non-retirement funding income (NRFI).

Notice that NRFI is unlimited.

So, if one had a great year last year and received a massive bonus or share option income, then contribute 15% thereof to a retirement annuity fund and reduce the effective tax rate from 41% to 34,85%.

Some of the wealthy have accumulated millions in their retirement funds using this calculation. Far more than they could ever need in retirement. Most of the stash will go estate duty free to their families. Thomas Pikkety would be appauled. 

Read also: Matthew Lester: Do I even want a retirement fund?

So lets pig out one last time. Because from the 2017 tax year the contribution will be limited to the lower of 27,5% of taxable income or R350 000.

The question remains ‘do I really want to invest in a retirement fund after all that has happened in the SA economy in the last 6 weeks? Wouldn’t I be better off passing by the tax advantage of a retirement fund and investing offshore using my R10 million offshore facility?’

Those words are haunting me:

"O Captain! my Captain! Our country’s in a funk,

As Julius tries to reach the top, the Rand approaches junk,

The goals are far, the cheers I hear, are students all protesting,

While we all slide down a steady slope, cronies are still expecting; etc etc”

I think I will delay this year’s retirement annuity contribution decision to the last moment.

This article first appeared on



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