What is Code 3603 on a South African Payslip?
Taxable pension annuity income explained — who receives code 3603, how PAYE applies to retirement income, the difference from code 3604, and what appears on your IRP5.
3603Code 3603 is taxable pension annuity income — the monthly pension payment you receive from your pension or retirement fund after retiring. Your fund or annuity provider acts as the paying institution, deducts PAYE using normal SARS tax tables, and issues an IRP5 showing code 3603. This is post-retirement income, not active employment salary.
What Code 3603 Means
Code 3603 is pension annuity income — the monthly retirement payment you receive from your pension fund or retirement annuity after you retire. When you leave employment and begin drawing a monthly pension, the fund transitions from receiving your contributions to paying you income. At that point, the fund or the life insurer managing the annuity becomes the paying institution and takes on the role of deducting PAYE, much like an employer does during working years.
This is an important distinction: code 3603 is not employment income (code 3601). You are no longer employed. The fund is paying you from the accumulated retirement savings. However, SARS taxes this income using the same progressive tax tables applied to employment income — the same brackets, the same rebates, and the same annual assessment process through your ITR12 return.
Code 3603 typically appears on the IRP5 of retired individuals. If you are still working and contributing to a pension fund, you will not see code 3603 on your payslip — you will see code 4001 (pension fund contributions as a deduction). Code 3603 only begins when you retire and draw an income from the fund.
How PAYE Is Calculated on Pension Income
Your pension fund or annuity provider deducts PAYE monthly using SARS's standard progressive income tax tables — the same tables applied to employment income. The primary rebate (R17,820 for 2026/2027) and, where applicable, the age-related secondary (R9,864 for persons 65+) and tertiary (R3,286 for persons 75+) rebates reduce the effective tax payable.
| Item | Amount |
|---|---|
| Monthly pension income (code 3603) | R18,000 |
| Annual projected pension income | R216,000 |
| Less: primary rebate (2026/2027) | -R17,820 |
| Less: secondary rebate (age 65+) | -R9,864 |
| Tax on R216,000 using SARS brackets | ≈R27,420 |
| Net tax after rebates | ≈R0 (rebates absorb most of the tax) |
| Effective monthly PAYE deducted | Minimal to zero at this income level |
The effective tax threshold — the income level below which no tax is payable — is higher for pensioners because of the age rebates. For persons under 65: R95,750/year. For persons 65–74: R148,217/year. For persons 75 and older: R165,689/year. Many South African pensioners earning below these thresholds pay no income tax on their code 3603 pension income at all.
Frequently Asked Questions
What does code 3603 mean on my IRP5?
Code 3603 is taxable pension annuity income — the monthly pension payments you receive from your pension or retirement fund after retiring. Your fund or annuity provider deducts PAYE using normal SARS personal income tax tables and issues an IRP5 with your pension income coded as 3603. It is income from retirement savings, not employment income, but it is taxed in the same way using the same tax brackets.
Is pension income taxable in South Africa?
Yes — most pension annuity income is taxable. Once you retire and your pension fund starts paying you a monthly pension, those payments are taxable income under code 3603 and PAYE is deducted by the fund. The primary rebate (R17,820 for 2026/2027) and any additional age-related rebates apply, which means lower-income pensioners may pay little or no tax. The fund calculates PAYE and remits it to SARS monthly on your behalf.
What is the difference between code 3603 and code 3604?
Code 3603 is the taxable portion of your pension income — the part that is subject to PAYE. Code 3604 is the non-taxable portion — the part exempt from income tax, typically arising from contributions made to the fund before 1 March 1998 from after-tax income. Many retirees have only code 3603 on their IRP5 (no pre-1998 non-taxable portion). Those with long service that predates 1998 may have both codes on their IRP5.
Who issues the IRP5 with code 3603?
Your pension fund or the life insurer paying your retirement annuity acts as the paying institution and issues your IRP5. When you retire and begin drawing a monthly pension, the fund effectively becomes your "employer" for tax purposes — it deducts PAYE, pays it to SARS, and issues you an annual IRP5 showing your pension income under code 3603. If you have multiple pension sources, you will receive multiple IRP5 certificates.
Do age rebates reduce the PAYE on code 3603 income?
Yes. SARS provides additional rebates for older taxpayers that reduce the amount of tax payable on income including code 3603 pensions. For 2026/2027: the primary rebate is R17,820/year (available to all taxpayers), the secondary rebate for persons 65 and older is R9,864/year, and the tertiary rebate for persons 75 and older is R3,286/year. These rebates mean many pensioners pay significantly less tax than working-age individuals on the same income level.
Does code 3603 affect my annual tax return?
Yes. Your pension income appears as code 3603 on your IRP5 and must be included in your annual ITR12 return. SARS pre-populates this from the fund's submission. If PAYE was correctly calculated throughout the year, your assessment should show little or no additional tax due. If you have other income sources alongside your pension, or if PAYE was under-deducted, your assessment will reflect any balance owed or refund due.