The value of a fringe benefit depends on the retirement fund type. There are three types of retirement funds.
Defined contribution funds
A defined contribution fund contains only defined contribution components. Contributions link directly to the benefits that members receive. The fringe benefit equals the actual employer contribution to the defined contribution fund.
Defined benefit funds
A defined benefit fund calculates retirement benefits according to the fund rules. The employer’s contributions may not match the benefit the member receives.
The monthly fringe benefit uses this formula:
X = (A × B) − C
X is the fringe benefit amount
A is the category factor for the employee (provided by the fund)
B is the employee’s retirement‑funding income
C is the employee’s total contributions to the fund for that tax year under fund rules
Only include the actual employee contribution in C. Exclude deemed contributions or voluntary payments such as “buy‑backs” for extra years of service.
Hybrid funds
Hybrid funds combine elements of defined contribution and defined benefit funds. They include underpin or risk components. The fringe benefit uses the same formula as defined benefit funds. The fund supplies a category factor that considers all components. Use this factor to calculate the monthly fringe benefit.
For more details on retirement funds, visit the Tax Guide at https://www.sage.com/en-za/support/digital-tools/.