EMPLOYEES ENJOY 1/3 TAX FREE PENSION - FINANCE

MBABANE – The Ministry of Finance has issued a statement on taxation of pension for members.

Setsabile Dlamini, the Communications Officer, said members of Parliament have a Pension Fund that was being recognised by the commissioner general. It is among several such pension funds that include the Public Service Pension Fund. Dlamini explained that when MPs received their salaries at the end of each month, an amount equivalent to 15 per cent was deducted as contribution to their pension fund in addition to the employer contribution as in other pension funds. She said the employees’ (MPs etc) contribution to the fund was being deducted from salary prior to taxation (pay as you earn). After their term in Parliament, and like in all pension funds, the communication officer said the member would receive a lump sum of up to one third tax free. In terms of the Income Tax Order, 1975, Dlamini explained that members of pension funds recognised as such by the commissioner general were entitled to an exemption from tax of one third of the total pay-out. She mentioned that the remaining two thirds would be paid out in monthly intervals and subject to tax, depending on the band determined by the amount.

amendment

She pointed to the fact that this entitlement was not confined to Members of Parliament, but even to civil servants or any other members of any pension fund. The Ministry of Finance stated that the current amendment to the Income Tax Order going through the legislative process would, however, have no bearing on the pay out to the 11th Parliament (current Parliament). The amendment will come into effect on July 1, 2024 (long after the 11th Parliament has been dissolved). Vusi Dlamini, the Eswatini Revenue Service (ERS) Corporate Affairs Director, said the principle on pension was that a member’s contribution was deducted and remitted to the scheme before tax. Dlamini used a scenario of a member whose pension accumulated E600 000. The corporate affairs director explained that one third of E600 000 is E200 000. He said the E200 000 would be treated as a lump sum, which a member would receive tax-free.

However, he said a member’s monthly payment from the pension would be considered for taxation in line with the tax brackets. “The member will be taxed at a certain rate applicable at that time, but it is lower for pensioners. If you are paid E5 000 per month, the ERS will determine the applicable tax bracket for such clients, but the one-third lump sum is not taxed,” he said. The ERS’s comment was sought after Thulani Hlatshwayo, the Secretary General of the National Public Services and Allied Workers Union (NAPSAWU), had disputed the Ministry of Finance’s statement, describing it as being sharply economical with the truth. The secretary general said the one-third lump sum was being taxed. He said the misunderstanding between them and government was actually caused by the taxation of their pension, including the lump sum they get upon retirement at 60. “That’s what we are fighting for. We have been complaining about the taxation of the lump sum,” Hlatshwayo said.

challenge

Mduduzi Gina, the Secretary General of the Trade Union Congress of Swaziland (TUCOSWA), said he would have to make enquiries on the matter and it was a challenge to him to give an opinion with authority. PSPF management could not be reached for comment last night. The Times SUNDAY reported in its previous edition that a re-elected or unelected MP was guaranteed a payment of a tax-free pension grant of E441 000.  A minister stands to receive E607 000 tax free. The remaining two-thirds for the backbenchers, the equivalent of about E882 000, shall be taxable. The E441 000 represents one-third of their contribution to Members of Parliament and Designated Office Bearers Pension Fund (MOPADO).

The South African Revenue Service (SARS) says when an employee retires as a member of a pension fund, pension preservation fund or retirement annuity fund and he or she wishes to take a portion of his or her retirement interest as a lump sum, he or she is allowed to take (commute) the lump sum equal to a maximum of one-third of the retirement interest in that fund.
The remaining two-thirds will be paid out in the form of an annuity (a regular pension). However, if the employee’s total retirement interest in the fund does not exceed E247 500, he or she may take the full retirement interest as a lump sum.

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