What is Code 3604 on a South African Payslip?
Non-taxable pension income explained — why part of your retirement payment is exempt from PAYE, the pre-1998 contribution origin, and how codes 3603 and 3604 work together.
3604Code 3604 is the non-taxable portion of your pension annuity income — the part of your monthly retirement payment that is exempt from income tax. It typically arises from contributions made to the pension fund before 1 March 1998, which were made from after-tax income and therefore are not taxed again when paid out as a pension. No PAYE is deducted on code 3604 amounts.
What Code 3604 Means
Code 3604 is the non-taxable portion of a pension annuity — the part of a retiree's monthly pension payment that is exempt from income tax. It appears on the IRP5 alongside code 3603 (taxable pension income), with the two codes together making up the total monthly pension annuity received.
The non-taxable portion originates from pension fund contributions made before 1 March 1998. Before that date, pension contributions were not deductible from taxable income — employees and employers contributed from post-tax money. When those accumulated contributions are eventually paid out as a monthly pension, taxing them again would amount to double taxation. The Income Tax Act therefore excludes this portion from taxable income, and it appears as code 3604 on the retiree's IRP5.
After 1 March 1998, the tax treatment of pension contributions changed: they became deductible from taxable income under what later became the Section 11F framework. Contributions made post-1998 are deducted when made and taxed when received as a pension — those form the code 3603 (taxable) portion.
How Codes 3603 and 3604 Work Together
Retirees with long service histories spanning the 1998 changeover will see both codes on their IRP5. The fund actuaries calculate the split based on contribution history:
| Item | Amount | Code |
|---|---|---|
| Total monthly pension annuity | R22,000 | — |
| Portion from post-1998 deductible contributions | R18,700 | 3603 (taxable) |
| Portion from pre-1998 after-tax contributions | R3,300 | 3604 (non-taxable) |
| PAYE calculated on | R18,700/month only | Code 3603 |
The 3603/3604 split is calculated by your pension fund's actuaries based on your individual contribution history. You cannot determine or change this split yourself. If you believe the non-taxable portion is too low — meaning you are paying PAYE on income that should be code 3604 — contact your fund administrator and request a detailed breakdown of how the split was calculated. Your contribution records from before 1998 are the key input.
Frequently Asked Questions
What does code 3604 mean on my IRP5?
Code 3604 is the non-taxable portion of your pension annuity income — the monthly pension payment that is exempt from income tax. It appears alongside code 3603 (taxable pension income) on the IRP5 of retirees who contributed to their pension fund before 1 March 1998 using after-tax money. Since those contributions were already taxed when made, SARS does not tax the corresponding pension payments again. No PAYE is deducted on code 3604 amounts.
Why is some pension income non-taxable?
The non-taxable treatment arises from contributions made to pension funds before 1 March 1998. Before that date, pension fund contributions were not deductible from taxable income — employees contributed from after-tax money. When those contributions are paid back as a pension, taxing them again would constitute double taxation. SARS therefore exempts the portion of pension income attributable to pre-1998 non-deductible contributions, reflecting it as code 3604 on the IRP5.
Will everyone with a pension have code 3604?
No — only retirees who contributed to their pension fund before 1 March 1998 will have a code 3604 component. Employees who joined the workforce after 1998, or whose entire pension is attributable to post-1998 contributions (which were deductible), will have only code 3603 on their IRP5. The fund's actuaries calculate the split between taxable (3603) and non-taxable (3604) portions based on the member's contribution history.
How is the split between code 3603 and code 3604 calculated?
The pension fund's actuaries perform the calculation based on the member's historical contribution records. The non-taxable portion (code 3604) reflects the proportion of the total pension fund value attributable to pre-1998 after-tax contributions, expressed as a fraction of the total pension annuity. The fund determines and communicates this split — employees do not calculate it themselves. If you believe your split is incorrect, raise it with your fund administrator.
Does code 3604 income appear on my annual tax return?
Yes — both code 3603 and code 3604 amounts appear on your IRP5 and are carried through to your ITR12 return. Code 3604 is included for transparency and reporting completeness, but it does not increase your taxable income and no PAYE is associated with it. SARS uses the information to verify that the non-taxable treatment was correctly applied.
What if I receive only code 3604 and no code 3603?
This would be unusual but theoretically possible if your entire pension is attributable to pre-1998 non-deductible contributions. In practice, most long-serving employees have a mix of pre-1998 and post-1998 contributions, resulting in both codes. If you receive only code 3604, your pension is entirely non-taxable and no PAYE should be deducted. Verify with your fund administrator that the classification is correct.