Retirement Funds

SimplePay has built-in items to accommodate the special tax and reporting requirements related to retirement funds. A detailed discussion of the tax implications of retirement funds is provided further down.

There are three types of retirement funds:

• Pension fund
• Provident fund
• Retirement annuity fund (RAF)

To add any of these items:

1. Go to Employees, and select the relevant employee.
2. Next to the Regular Inputs heading, click the Add button.
3. Under Deduction, click Pension Fund, Provident Fund, or Retirement Annuity Fund.

The next steps are listed below for the different funds:

Pension Fund and Provident Fund

Continuing on from the three steps above:

1. Select "Fixed amount" or "% of Retirement Funding Income", depending on how you want the contribution to the fund to be calculated. After you have selected one of the two options, you also have to specify the fixed amount or percentage to be contributed by the employee and employer, respectively. If the contribution is based on a percentage, you will need to configure the Retirement Funding Income (RFI), as detailed below.
2. You can then select the Beneficiary from the drop-down if you have already set up beneficiaries. More information can be found here.
3. The last input that is applicable to Defined Benefit (DB) and hybrid funds only, is the Category factor.

The nature of the fund is determined by its rules. You should contact your fund administrator in order to determine the nature of the fund. As a rule, all RAFs will fall under the Defined Contribution (DC) category, with most provident funds doing the same. Pension funds could fall under either DC or DB.

Defined Benefit funds and Contribution Certificates

If an employee is part of a DB fund, and the fund has not issued a Contribution Certificate, you should request this as a matter of urgency. This certificate contains pertinent information about the fund, including the Category factor used in the DB and hybrid benefit formula.

RFI configuration

If the pension or provident fund contributions are calculated as a percentage of RFI, you need to indicate which payslip components form part of RFI. To do this:

1. Go to Employees, and select the relevant employee.
2. Select Edit Info > Retirement Funding Income.
3. Select the RFI Determination.
4. Click Save.

Choosing an RFI determination

• Choose "Selected Incomes" or "Percentage per Income" if you want to include only certain incomes/allowances or benefits.
• "Percentage per Income" should be used only in the following instance: if only a portion of the income is included in the RFI (to which the percentage for retirement contributions is applied). For example, if a pension fund contribution is calculated as 7% of half of an employee's basic salary, you would use "Percentage per Income" to capture 50% of the basic salary as the employee's RFI. The 7% would have already been captured when adding the pension fund under Regular Inputs for the payslip.

Including custom items in RFI

Choosing "All income / benefits / allowances" will include custom items. See the Custom Items help page for more information.

Retirement Annuity Fund

Continuing on from the three steps at the top:

1. Enter the Amount per month that is to be contributed to the fund.
2. Enter the Portion contributed by employer.
3. Tick the Employee handles the payment box if the employee will take care of the payment.
4. If you do not tick the box, you will have the option to select the Beneficiary from the drop-down if you have already set up beneficiaries. More information can be found here.
5. Click Save.

Formula options for RAF contributions

Instead of specifying a fixed amount, you have the option to calculate the RAF contributions based on a percentage of the basic salary. You can use the following formula:

= basic_salary * [percentage]

E.g. for 10%: = basic_salary * 0.1

Also, you have the option to deduct a fixed monthly amount from the first payslip of a non-monthly employee in any given month. The following formula can be used in the Amount per month field:

= max(0, monthly amount - mtd_before_current('raf_contribution'))

E.g. = max(0, 300 - mtd_before_current('raf_contribution')). This will deduct R 300 from the first payslip (e.g. weekly or fortnightly) in any given month.

The contributions will be reported under the following codes:

• 4472: Employer Pension Fund Contributions
• 4473: Employer Provident Fund Contributions
• 4475: Employer RAF Contributions

Tax Implications of Retirement Funds

On 1 March 2016, uniform tax treatment came into effect for all three types of retirement fund, which simplifies things significantly compared to the previous situation.

Taxable fringe benefits

All employer contributions give rise to a taxable fringe benefit, the calculation of which is discussed below.

The distinction between DC, DB, and hybrid funds (discussed above) is important as it impacts the value of the fringe benefit arising from employer contributions:

• DC funds: fringe benefit = value of employer contribution
• DB funds: fringe benefit is calculated according to a formula (in the note below)
• Hybrid funds (which contain elements of both a DC and a DB fund): fringe benefit is calculated using the DB formula (in the note below)

DB formula

Fringe benefit = (A × B) – C

Where:

A = fund member category factor (provided in Contribution Certificate)

B = employee's RFI

• RFI – Fourth Schedule Remuneration; only includes the taxable portion of the travel allowance and company car benefit.

C = employee's own contribution, excluding voluntary contributions

The fringe benefits will be reported under the following codes:

• 3817: Employer Pension Fund Contributions
• 3825: Employer Provident Fund Contributions
• 3828: Employer RAF Contributions

Taxable income deduction

Contributions to retirement funds can be made by the employer and/or the employee. For tax purposes, the employer contribution is deemed to be a contribution paid by the employee.

The total contribution (actual plus deemed) to all retirement funds is allowed as a deduction up to 27.5% of remuneration* (as defined), with an overriding monetary cap of R 430,000 annually.

*Remuneration will include the value of any fringe benefits such as employer contributions to retirement funds.

The recommended treatment of the monetary cap involves spreading/averaging it over the tax year, using a cumulative calculation. Any unused cap (percentage or monetary) is carried forward each month and also into the following tax year if necessary.

Retirement Deduction trace

The Retirement Deduction trace provides you with information on how the taxable income deduction for retirement contributions is calculated for an employee. To view the Retirement Deduction trace:

1. Go to Employees, and select the relevant employee.
2. In the Payslip section, click More next to Preview (draft payslips) / View (finalised payslips).
3. Under Taxable Income Deductions, click Retirement Deduction.

The deductions will be reported under the following codes:

• 4001: Pension Fund Contributions
• 4003: Provident Fund Contributions
• 4006: RAF Contributions