THE CONTRIBUTIONS PAYABLE TO THE FUND
PLEASE NOTE: The tax treatment of contributions to pension funds changed significantly with effect from 1 March 2016.
The allowable tax deduction for contributions to all retirement funds has increased to 27.5% (of the greater of taxable income or gross remuneration), up to an annual limit of R350 000. This applies to member and employer contributions, combined.
The R350 000 annual limit will restrict tax deductibility for very high earners.
What contributions do members pay?
Members contribute at a rate of 7.5% of pensionable salary on a monthly basis.
Members who have completed 15 years of contributory service in the Fund have the right to stop making contributions to the Fund, provided that the payroll system through which these contributions are paid can accommodate this – the Persal system cannot do so. This is a once-off decision - you must inform the Fund in writing in order to exercise this once-off option. You will also need to make the necessary arrangements with the pay point through which your contributions are paid (and any subsequent pay points if you change political office later on). In order for the Fund’s administrators to be aware of and implement your option, you will need to send them a copy of your request (see page 2 of the Introduction Document for the administrator’s details). Once you have ceased contributing to the Fund, you may not start contributing again at a later date.
Note that, if you choose to stop contributing after achieving 15 years of contributory service, the effect will be that your take-home pay increases because your 7.5% monthly contributions are no longer being deducted. However, less money is building up in the Fund towards your retirement – the State does not take over payment of the 7.5% contributions on your behalf.
Can members make extra contributions to the Fund?
Yes, you may make additional contributions towards your retirement savings, provided that the payroll system through which these contributions are paid can accommodate this – the Persal system cannot do so. The rate and frequency of the payment must be agreed to by the Trustees (but should preferably be in the form of regular monthly amounts contributed through your pay point). You should consider the tax implications of making additional contributions – you may need specialist tax advice on this.
You may also transfer benefits from a previous retirement fund of which you were a member, to this Fund (if the rules of your previous fund allow this) – there may be advantages to doing this, but you are encouraged to take expert financial advice before making a decision. What contributions does the Employer (the State) pay?
The State pays the following amounts to the Fund:
- A contribution of 17% of your pensionable salary to your Basic Fund Credit towards your retirement savings. Plus
- An additional contribution of 4,8% of the total pensionable salaries (for all members combined) towards insured “risk benefits” – this refers to the insured death and disability benefits provided for Fund members while in office, and also to family funeral benefits and spouses’ life insurance. Note that the disability, funeral and spouses’ benefits are provided by insurance companies outside the Fund – the Fund Rules do not deal with these benefits. Plus
- An additional contribution of 0.7% of total pensionable salaries towards the cost of operating the Fund. This effectively sets a “budget” to assist the Trustees in managing the affairs of the Fund.
What is the definition of pensionable salary?
Your pensionable salary is 60% of your Total Remuneration Package (being the salary and allowances as proclaimed by the President).
For a member who is a diplomat, pensionable salary is determined by the Department of Foreign Affairs.