T-Day Retirement fund reforms delayed
Craig Aitchison, General Manager Corporate Customer Solutions at Old Mutual Corporate.
Following a request from labour to allow for further consultations between Government and National Economic Development and Labour Council (Nedlac) on social security reform, Government has agreed to delay the implementation of the new laws regarding the tax treatment of retirement fund contributions and the harmonisation of the annuitisation regime.
The changes, which were introduced by the Tax Laws Amendment Act 2013, and which have now been delayed from 1 March 2015 to 1 March 2016, have been broadly supported by the retirement fund industry. Should there, however, be no agreement at Nedlac by end-June 2015, the implementation date may be moved to 1 March 2017.
There has been general acceptance that retirement reform was necessary and Old Mutual had welcomed these developments. Based on statistical evidence, South Africans do not save enough for retirement and according to Craig Aitchison, General Manager Corporate Customer Solutions at Old Mutual Corporate, these reforms seek to improve outcomes for fund members, particularly members of provident funds.
“We believe the proposed reforms are a positive and concrete step to improving savings levels and income during retirement in South Africa, and hope that any issues can be resolved soonest so that reforms can continue to progress.”
He adds that it is encouraging that National Treasury is investing the appropriate time and consultation to ensure that the reforms are successful.
Aitchison says that National Treasury released the Revised Draft Bill and Regulations last week and the final Bills are expected to be tabled in Parliament on Wednesday 22 October.
The following changes have been delayed to 1 March 2016:
• Fringe benefit taxation of employer contributions to retirement funds
The value of employer paid contributions to retirement funds will be fringe benefit taxed in the hands of employee members. Contributions paid by an employer to a retirement fund will be deemed to be an employee contribution to the extent of the fringe benefit inclusion and as such may be applied in respect of the new deduction regime that will be available to members.
• The new deduction regime for retirement fund contributions
This change will permit most members to increase their contributions and qualify for a deduction of up to 27.5% of their remuneration subject to an annual maximum of R350 000.
• Provident fund post-retirement alignment
Members will only be able to take up to 1/3rd of their retirement benefits in cash, and be required to purchase a pension with the balance, as with a pension and a retirement annuity fund. Vested rights will, however, be preserved.
The following changes are going ahead with effect from 1 March 2015
• Tax incentivised savings plan (TISP)
Investors will be entitled to invest in tax free investments up to an annual maximum of R30 000 with a lifetime maximum of R500 000. “The fact that this scheme is still going ahead is welcome news and a good opportunity for investors to earn returns on their investments free of tax. We encourage people to consider this vehicle and how it could best fit into their financial plan,” says Aitchison.
• New disability income tax regime
Employees will now be taxed on the premiums paid by the employer which will result in a reduction in take home pay. If, however, they become entitled to receive a disability income benefit in the future, they will receive this tax free.
• Option to postpone receipt of retirement benefits
This change to the definition of “retirement date” will permit members to elect when they want to retire. They are currently only permitted to retire, with the associated tax benefits, upon the attainment of normal retirement age. “This is a welcome change which will enable members to defer receipt of their retirement benefits until a time that will suit them,” says Aitchison.
