The employer’s contribution to the pensioner’s medical aid premiums (medical aid subsidy) needs to be handled differently for the pensioner’s over the age of 65 and for those under the age of 65.
For pensioners over the age of 65, the medical aid subsidy will be displayed on the pensioner’s payslip as an allowance and forms part of the pensioner’s income. The full medical aid premium (employer’s portion and employee’s portion) is deductable from the pensioner’s income for tax purposes.
If the employer subsidy is not 100%, the employee pays the balance of the medical aid premium.
The full medical aid contribution is deducted from the member’s pension and paid over to the medical aid and the gross pension amount plus the medical aid subsidy is recovered from the retirement fund.
This is catered for on the system as follows:
- The employer subsidy is captured with an Annuity Payment Type of MED AID SUBSIDY
- The Medical aid subsidy is reflected on the payslip as income
- The full medical aid premium (employee plus employer portion) is captured with an Annuity Payment Type of MEDICAL AID and this is treated as a deduction. The Tax Relief Percentage on the Payment Detail is captured as 100%.
- The tax is calculated by deducting the MEDICAL AID amount from the gross pension amount (Amount for Payment Type ANNUITY) plus the medical subsidy amount (amount for Payment Type MED AID SUBSIDY).
- The full medical aid premium is included on the Third Party Payment Schedule for the medical aid and in the EFT payment to the medical aid.
For more information refer to
Processes
Regular Payments
Schedules
Third Party Payment
- The gross pension amount is included in the Payment Instruction sent to the admin branch/region.
- The medical aid subsidy is included in the Employer Subsidy report sent to the admin branch/region.
For pensioners under the under the age of 65, the medical aid subsidy will not be displayed on the pensioner’s payslip and does not form part of the pensioner’s income.
The medical aid subsidy is not deductable from the pensioner’s income for tax purposes, but the employee’s portion is tax deductable subject to certain maximums.
The employee’s portion of the medical aid premium is deducted from the member’s pension and the employee’s portion and the employer’s portion is paid over to the medical aid. The employer’s portion is recovered from the employer.
For more information on annuity deductions refer to
Supplements
Annuity Deductions - Journal Transfers