Retirement Savings Business

Definition of Terms

Retirement Contribution means a payment made to a retirement fund for the provision or future provision of retirement payments;

Retirement Fund means any entity established and maintained solely for the purposes of accepting and investing retirement contributions in order to provide retirement payments to individuals who are beneficiaries of the entity;

Retirement Payment means a payment, by way of a lump sum, pension or commuted pension, made by a person to -
(a) an individual in the event of the individual's retirement; or
(b) a relative of an individual in the event of the individual's death;

Approved Retirement Fund means a resident retirement fund having a ruling under section 131 of the Act;

Unapproved Retirement Fund means a retirement fund that is not an approved retirement fund

Commuted Pension means a payment received by an individual on retirement of the individual for the surrender of at least half of the individual's pension rights in respect of a retirement fund.

For the purposes of calculating the income of a retirement fund -
(a) Retirement Contributions received by the fund shall not be included in the calculation and shall not be an incoming of the fund; and
(b) Retirement Payments shall not be deductible and are not included in the cost of any asset or liability of the fund.
Where an approved retirement fund ceases to be an approved retirement fund during a year of income, its income tax payable under section 4(1)(a) for the year of income shall be increased by an amount equal to the income tax rate applicable to corporations applied to -
(a) all retirement contributions received by the fund from or on behalf of resident individuals and total income of the fund during the period from its most recent approval as an approved retirement fund to when it ceased to be so approved;
less;
(b) all retirement payments made by the fund from its most recent approval as an approved retirement fund to when it ceased to be so approved in respect of individuals who were resident during that period.

Guide for pensioners
There are several types of retirement payments
  • Regular pension. This is when your pension is paid in periodic payments.
  • Commuted pension. This is when at least half of your pension entitlement is paid to you as a lump sum rather than in periodic payments.
  • Pension (regular or commuted) from approved retirement fund. This is when your pension is received from a retirement fund approved by Government (including the statutory funds such as NSSF, PPF, PSPF, LEPF, ZSSF).
  • Pension (regular or commuted) from unapproved retirement fund. This is when your pension is received from a retirement fund other than a Government approved retirement fund.

Pension received from approved retirement fund
Pensions received from approved retirement funds are not included in investment income and therefore no tax is paid. This is because the retirement fund's own profits have been taxed.

Pension received from unapproved retirement funds
Pensions received from unapproved retirement funds are exempt. This is because the contributions to such funds and the funds themselves were taxed.

Pension received from non-resident retirement funds
Pensions received from non resident retirement funds are taxable to the extent they are a gain over the contributions. In other words, no tax is paid until the total received in pension has exceeded the total contributions made. After that point, tax is paid using the individual rates.

Pension received directly from employer
If you receive a pension directly from your previous employer, then it is taxed as income from employment. You should refer to the page for people whose income comes solely from employment.

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