How much tax will I pay if I cash in my pension?

cash in my pensionWillie writes: I am planning on leaving my employer after 25 years and I want to cash in my pension fund of R2.1 million. How much tax will I pay? I am 50 years old.

Maya replies:

When you resign and cash in your pension, the tax is worked out on a sliding scale ‒ and it is high. Based on the current tax tables, you will pay 18% tax on the first amount between R25 000 & R660 000, then 27% on the amount from R660 001 to R990 000, and finally 36% on the amount above that.

In your case you would pay around R600 000 in tax. Take a moment to consider that if you left that R600 000 to grow, it could be worth R1.2 million by the time you are 60 ‒ so you should realise the real impact of taking the funds now.

It would be far better to preserve the funds until you reach retirement age. At that stage you can take a R500 000 lump-sum tax free.

This article first appeared in City Press.