The Taxation Laws Amendment Act 23 of 2015, which was promulgated on 8 January 2016, kicks off the long-awaited retirement reform process – but are you ready?
The aim of this first fledgling step towards broad reform is to harmonise the tax deductibility of contributions to all types of retirement funds, as well as provide for the compulsory annuitisation of at least two-thirds of a retirement benefit derived from a provident fund, subject to vested rights to full commutation. So retirement fund reform is finally upon us, but most of us may have overlooked its immediate practical significance.
THE CHANGES ANALYSED
According to Nigel Willmott, an employee benefits consultant, the main provisions that will apply from 1 March 2016 are:
- Employer contributions will be taxed as fringe benefits in the hands of employees.
- Employees may deduct up to 27,5% of remuneration or taxable income as contributions (by employer/employee) to pension, provident and retirement annuity funds, subject to a R350 000 annual cap.
- Not more than one-third of the retirement benefit from a provident fund may be taken as a lump sum. However, this restriction does not apply to pre-March 2016 contributions (and growth thereon). Provident fund members who are 55 years or older on 1 March 2016 will be able to commute the full retirement benefit, including contributions made on or after 1 March 2016 (and growth thereon), to the provident fund of which he/she was a member on 1 March 2016.
- The commutation threshold upon retirement, sometimes referred to as the de minimis amount, is increased to R247 500 (from the current threshold of R75 000). If a member’s retirement benefit is R247 500 or less, they will be allowed to take their whole benefit as a cash lump sum.
- There will be tax-free portability between all tax-approved funds, including pension to provident fund transfers.
Are your payroll systems aligned with these new requirements? What does it mean for employees and employers? Don’t overlook your own retirement plans – and if it all seems a bit confusing, get some professional advice.
Author: Mike Lledo CA(SA) is the CEO at Consolidated Financial Planning
