The gist of the revisions to the new laws are as follows:
Annuitisation: Government is flexible on the implementation of compulsory annuitisation for provident funds, and proposes to postpone implementation for two years, from 1 March 2016 to 1 March 2018.
Tax deduction: All tax related measures, including the harmonised 27.5% tax deductions (up to R350 000) on contributions to any retirement fund, will be implemented for all retirement funds from 1 March 2016. If there is no agreement on the annuitisation after two years, the tax deduction will be adjusted to get the right balance.
To prevent tax abuse related to the postponement on annuitisation for provident funds, no transfers from pension funds to provident funds can be allowed for the next two years.
This implication of the annuitisation delay is that “vested rights” will only be determined with reference to the fund balance on 29 February 2018, and that provident fund members older than 55 on 1 March 2018 will be “excused” from the annuity provision.
It is not clear yet whether the new annuitisation threshold of R247 500 will still take effect on 1 March 2016, or only on 1 March 2018. However, we suspect this will be delayed.
The net effect of the about-turn will therefore be as follows:
- The new tax deduction rules will proceed as legislated, including the 27,5%/R350 000 employee contribution cap and the imposition of fringe benefits tax on employer contributions.
- On retirement, provident fund members can for now still cash in their full retirement fund as before, without restrictions relating to contributions made after 1 March 2016
National Treasury will need to go to Cabinet and Parliament on how to proceed in the most efficient way. Treasury will make an announcement in the Budget and look for a quick process in Parliament.