Traditionally comparisons between South Africa and Australia have focused on rugby or cricket. However here we attempt to compare the Retirement Savings Systems of the two countries. In Australia this is known as Superannuation and in South Africa retirement savings vehicles include Retirement Annuity, Pension and Provident Funds.

COMPULSORY CONTRIBUTIONS
Employers have no legal obligation to contribute towards an employee’s retirement fund.

Employers are legally obligated to contribute 9.5% of an employee’s wage to superannuation
LUMP SUM WITHDRAWALS
Can only withdraw 1/3 of the total fund as a lump sum on retirement at age 55 or permanent incapacity. The remaining 2/3’s has to be taken as a compulsory annuity. Can withdraw 100% of retirement annuities as a lump sum on emigration or if the fund is a provident fund. However from 01/03/2015 provident funds will be subject to the same one-third limit. Can withdraw entire fund on reaching age 55 and retiring; attaining age 65; permanent incapacity; termination of gainful employment at age 60 and contracting a terminal medical condition. There is no compulsory obligation to withdraw the funds on retirement. There is also no requirement to commute the fund into an annuity and the whole fund can be withdrawn as a lump sum.
TAX ON WITHDRAWALS
The tax treatment will depend on whether the lump sum is a withdrawal benefit (emigration) or a retirement benefit. Both are taxed on a sliding scale except that no tax is paid on the first R300,000 (A$42,860) of a retirement benefit whereas the withdrawal benefit only has a R22,500 (A$3,215) exemption. The sliding scale is between 18 and 36% depending on the size of the lump sum. See Retirement Annuity Transfers for detailed tax tables on retirement annuity fund lump sums. For those over 60 years old allwithdrawals are tax free including the taxable component. For people currently between 55 an 59 years of age the first $185,000 of the taxable component is tax free and the balance is taxed at a maximum rate of 15%.
TAX ON CONTRIBUTIONS
No contributions tax on any contributions. 15% contributions tax is payable by the super fund on concessional contributions. No contributions tax on non-concessional contributions.
INVESTMENT CHOICE
Retirement Annuity Funds are usually run by life companies who offer a choice of risk profiled portfolio investments. There are prescribed limits on each assets class for example a fund cannot invest more than 25% of its funds in property based investments. Australia has a remarkable form of retirement fund called a “Self Managed Superannuation Fund“. Within this fund members act as trustees for their own money and can invest in a wide variety of assets including: direct shares, commercial and residential property, unit trusts, term deposits and fixed interest securities. There are no prescribed limits on any asset class.
CONTRIBUTIONS
Currently tax deductible contributions on retirement annuities are limited to 15% of non-retirement funding income or R3,500 p.a., whichever is the greater. Pension and provident funds are limited to 7,5%. However, from 1 March 2012 taxpayers will be able to claim a deduction of up to 22.5% of total taxable income limited to a maximum of R200,000 (A$28,600). There are no limits on contributions for which no tax deduction is being claimed and the tax free component of lump sums at retirement will be increased by all unclaimed deductions. Taxpayers can make tax deductible contributions (known as concessional contributions) of up to A$30,000 p.a. or A$35,000 p.a. if aged 49 or over on 30 June 2014. Contributions for which no tax deduction is being claimed (known as non-concessional contributions) are limited to $180,000 p.a. or $540,000 p.a. under the 3 year bring forward provision.
TAX ON FUND EARNINGS
Retirement funds pay 0% tax on their earnings Superannuation funds in accumulation phase (pre-retirement) are taxed at 15% on their earnings. Superannuation funds in the pension phase are taxed at 0%. Due to the dividend imputation system, superannuation funds often get tax refunds on dividend income which brings down the average tax rate. Those in pension phase receiving fully franked dividends will often receive tax refunds.
LIFE INSURANCE
Pension and Provident funds can hold life insurance for the fund member but not Retirement Annuity funds. Superannuation funds can hold life insurance for members and receive a tax deduction for life insurance premiums which would otherwise be non-deductible for the individual.
VERDICT
South Africa falls down in almost all respects especially with regards to compulsory contributions and tax on withdrawals which effectively penalises people for saving for their retirement. Australia’s retirement saving system is recognised to be amongst the best in the world and wins this contest hands down. However, Australia has far greater motivation to ensure its citizens save for their retirement due to its more generous social security system. For example a full Government Age pension is A$1,850 per month compared to South Africa which only provides A$140 per month.