FINANCIAL FORUM
Q&A: Tax efficiency of paying into a retirement annuity
You still get a RA tax deduction even if you have cashed in your pension
Q: Following on from your Q&A headlined “How does tax-free severance pay work?” (https://www.businesslive.co.za/bd/life/2020-09-15-qa-how-does-tax-free-severance-pay-work/) I would like to ask about the tax efficiency of paying into a retirement annuity (RA). If the combination of a severance package and cashing in my pension savings has taken my tax rate on lump sums to 36%, is there any benefit in paying into an RA if my current marginal tax rate is about 25%? Or will it be tax efficient only if I do not take a lump sum from the RA and convert all of it to an annuity after retirement? — Kim DP via e-mail
A: Janet Hugo, independent financial planner at Sterling Private Wealth, replies:..
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