The new proposals on retirement brought in by former Finance Minister Chris Liebenberg in the March budget clear the air to a degree but still leave taxpayers with the vexing issue of whether to retire now under the present legislation, or to brave the heat of uncertain tax laws in the future.
So what are the proposals and how much do they affect taxpayers?
The cut-off retirement date is March 1 1997 - if you retire after that you'll be at the mercy of the new tax dispensation.
The Tax Situation If You Retire Before March 1 1997:
* Tax on your lump sum
The money you receive from your retirement fund will be taxed according to the existing rules (very broadly, the first R120 000 could be tax-free, but this amount is calculated according to a formula).
* Tax on your pension
Your pension income will not fall under the new rules on retirement funds (which tax a fund at 17 percent on its taxable income, and which results in a lower return to fund members) because of a concession granted by the government to people retiring before March 1 1997.
Your pension income will get the same treatment as existing pensioners, which means that the portion of the fund's assets which finance existing pension obligations will not be taxed at the 17 percent.
When you receive your monthly pension - as is the case with existing pensioners - it will be taxed as normal income at the individual tax rates. Wealthier taxpayers will find that their marginal tax rate is higher than the 17 percent had the income in the fund's been taxed.
The Tax Situation If You Retire After March 1 1997:
Tax on your lump sum
Your lump sum will be taxed according to the new rules, which the government is still in the process of drawing up.
These rules will rest on the main recommendations of the Katz Commission, most pertinently that a lifetime annuity (pension income) should be favoured, tax wise, above a lump sum. That is bad news for people planning to take out a large lump sum on their retirement.
The minister has made some assurances to taxpayers in a bid to keep them in the economy.
Members of private sector funds got the option (to be phased out over five years) of calculating the tax-free portion of their lump sum on both the old and the new tax rules, and choosing the option with the higher tax-free amount.
Civil servants were offered protection of vested rights in their fund until the date of change.
* Tax on your pension
The 17 percent tax on the income of fundsis merely the first step in the decision to tax the growth build-up in the funds. Because the fund is taxed, your pension payout will not be taxed. When your retire, you will probably pay tax on the value of future pension payments if the Katz Commission formula is adopted.
WHAT THE SPECIALISTS SAY
Michael Belling, of Sage Life:
Don't make any decision to advance your retirement date until the situation becomes clearer.
Over the next two years it appears unlikely that people will suffer any additional loss if they wait. Those who are due to retire at a later date should review their situation early in 1997.
It must be remembered that early retirement almost invariably results in a loss of benefits because of the shorter period of service and the loss of contributions to the fund.
Brian Hewitson, of Hewitson Financial Consultants:
You need to carefully evaluate your specific circumstances once the new legislation is announced, possibly in July/August this year.
You must take into account details such as the amount and nature of your retirement funds; other sources of taxable income, and amounts that can be taken as an annuity.
If at all possible, it may be advantageous to retire both before and after the new dispensation. For example, retire from employment and employer funds before the change, but defer retirement from annuities until afterwards.