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Does a pension fund get taxed?

19 Oct 2022

Pension funds are often used by people to save for retirement. But when someone dies before reaching retirement age, that money must be paid back to the government. This article explains how this works.

The Basics

A pension fund is an investment vehicle that allows individuals to set aside money for retirement. It’s also known as an Individual Retirement Account (IRA). If you contribute to a pension plan, you will receive tax benefits in return. However, there are some exceptions.

The main purpose of a pension fund is to save money for retirement. As the person who contributes to it, you are entitled to certain tax benefits. These include a deduction on your taxes for contributions to the fund and a reduction of your taxable income in the year you make the contribution. There are many types of pension plans.

Is it a Pension or an Annuity?

An annuity is a contract between two parties where one party pays the other a fixed sum of money at regular intervals. In contrast, a pension is a payment made by an employer to its employees based on years of service.

There are many types of annuities available, and they can be used for a variety of reasons.  Annuities can be paid out as either lump sums or installments.

When Do You Pay Taxes?

If you receive a pension, you will pay taxes when you file your tax return. However, if you are receiving an annuity, you do not need to pay any taxes until you withdraw the funds. This means that you can delay filing your taxes until you actually take the money out of your account.

Before you can file for your annuity, you need to know when you will be taking the money out of your account. Once you know this, you will know how much you will have to pay when you file your taxes. 

Can You Claim Pensions as Income?

A pension is considered income and therefore you must report it on your tax returns. However, there are some exceptions to this rule. One exception is if you are receiving a pension from a government agency. Another exception is if you are getting a pension from a private company. In this case, the company has agreed to pay you a certain amount each month.