Today I have included a brief summary I received from Allan Gray, with regards to the impact of the delay in the proposed retirement reform changes that were due to come into effect on 1 March 2015. Implementation has been delayed to 1 March 2016.
What has been delayed?
Compulsory annuitisation for provident fund members
What has been delayed?
Compulsory annuitisation for provident fund members
- It was proposed that members of provident funds would be required to annuitise at least 2/3 of their retirement benefit on retirement, subject to the protection of vested rights.
The delay in the implementation means that provident funds will not be aligned with pension funds, preservation funds and retirement annuity funds until 1 March 2016. Members of provident funds who will retire during the course of the 2015/2016 tax year will not be required to purchase an annuity on retirement. These members can still elect to withdraw their full retirement benefit at retirement.
Deductions for member contributions to retirement funds
Deductions for member contributions to retirement funds
- It was proposed that from 1 March 2015, deductions of up to 27.5% of the greater of your taxable income or remuneration would be allowed for your contributions to all pension, provident and retirement annuity funds, subject to a cap of R350 000 per year. This has been delayed and the deductions for contributions to pension funds and retirement annuity funds will continue to be governed by current legislation.
No deductions will therefore be allowed for member contributions to a provident fund during the course of the 2015/2016 tax year.
Employer contributions
Employer contributions
- It was proposed that employer contributions to occupational pension and provident funds will be a fringe benefit to be included in the gross income of the employee. These contributions would have been deemed to be the employees contribution.
Employer contributions to pension and provident funds will no longer be deemed to be a fringe benefit in the hands of employees’ until 1 March 2016. As a result, employees cannot treat these contributions as their own when calculating their tax deduction.
As per current legislation, employer contributions to a retirement annuity fund will still be a fringe benefit and employees may treat these contributions as their own when calculating their tax deductions.
Commutation at retirement
As per current legislation, employer contributions to a retirement annuity fund will still be a fringe benefit and employees may treat these contributions as their own when calculating their tax deductions.
Commutation at retirement
- It was proposed that if the value of your retirement benefit at retirement was less than R150 000, you would be able to withdraw the entire amount without the need to purchase an annuity.
This has been delayed and the total value of your retirement benefit at retirement must still be less than R75 000 as per current legislation before you can fully withdraw.
What has not been delayed?
Tax free savings account
What has not been delayed?
Tax free savings account
- Effective date still 1 March 2015.