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Maya Fisher-French un­packs the Tax­a­tion Laws Amend­ment Bill and al­lays the fears cre­ated by mis­in­for­ma­tion over the new changes to re­tire­ment prod­ucts

CityPress - - Busi­ness -

This week, Pres­i­dent Ja­cob Zuma signed into law the 2015 Tax­a­tion Laws Amend­ment Bill, which af­fects the tax treat­ment of re­tire­ment funds. Per­son­ally, I am re­lieved that the bill has fi­nally been passed af­ter a year of de­lays. Un­for­tu­nately, there has been a lot of noise and false in­for­ma­tion spread about these changes, which are, on the whole, ex­tremely ben­e­fi­cial for in­di­vid­u­als sav­ing to­wards re­tire­ment.

For me, a key change is the stan­dard­i­s­a­tion be­tween all re­tire­ment prod­ucts, which means that whether you are sav­ing in a re­tire­ment an­nu­ity, a pen­sion fund or a prov­i­dent fund, the same rules will ap­ply. The var­i­ous rules around these prod­ucts made it chal­leng­ing for the av­er­age re­tire­ment mem­ber to un­der­stand the tax im­pli­ca­tions and rules around their se­lected prod­uct.

From March 1, ir­re­spec­tive of whether you are sav­ing in a re­tire­ment an­nu­ity, prov­i­dent or pen­sion fund, you will be able to save up to 27.5% of all your in­come for re­tire­ment, tax-free.

The re­stric­tions around only be­ing able to con­trib­ute based on your “pen­sion­able salary” will also fall away, which means in­di­vid­u­als will be able to save even more as the “pen­sion­able salary” was cal­cu­lated at about 75% of your to­tal salary.

Now, maybe if you are strug­gling to meet even the ex­ist­ing limit of about 15%, this will not mean that much to you, but for some­one closer to re­tire­ment who has re­alised they have been un­der­sav­ing, this pro­vides an ex­cel­lent op­por­tu­nity to top up their re­tire­ment fund.

Govern­ment has, how­ever, lim­ited the max­i­mum amount you can con­trib­ute in a year to R350 000. This means any­one earn­ing more than R1.2 mil­lion will be capped at a max­i­mum of R350 000 tax-free re­tire­ment sav­ings. This will have a neg­a­tive ef­fect on high­er­in­come earn­ers.

Due to the stan­dard­i­s­a­tion of the tax rules, you can now con­sol­i­date your preser­va­tion funds. If you are one of the mi­nor­ity who has pre­served your re­tire­ment funds when chang­ing jobs, you prob­a­bly find that you have sev­eral preser­va­tion funds all at­tract­ing ad­min­is­tra­tion fees.

You will now be able to con­sol­i­date all those funds into a sin­gle, cost-ef­fec­tive prod­uct.

You can also trans­fer your re­tire­ment money be­tween funds, which should make it eas­ier to pre­serve your re­tire­ment funds. For ex­am­ple, if your cur­rent em­ployer of­fers a pen­sion fund and your new em­ployer has a prov­i­dent fund, you can still trans­fer your ex­ist­ing funds to the new em­ployer’s fund, tax-free.

Now to the more con­tentious is­sues that led to many false ru­mours. To bring prov­i­dent funds in line with pen­sion funds and re­tire­ment an­nu­ities, a prov­i­dent fund mem­ber will no longer have the op­tion of cash­ing in the full value of their fund on re­tire­ment. They will be re­quired, as a pen­sion fund and re­tire­ment an­nu­ity mem­ber, to buy an an­nu­ity in­come with two-thirds of the cap­i­tal.

If this wor­ries you, it is worth not­ing that this only ap­plies to fu­ture con­tri­bu­tions, so any money that you have ac­cu­mu­lated in your prov­i­dent fund up to March 1 2016 will still be avail­able on re­tire­ment as a full cash pay­out if you wish.

So it makes no sense to cash in your prov­i­dent fund now if you are con­cerned about ac­ces­si­bil­ity, be­cause the funds you have ac­cu­mu­lated are still fully ac­ces­si­ble.

In fact, gov­ern­ment has gone a step fur­ther to re­as­sure those close to re­tire­ment – if you are a mem­ber of a prov­i­dent fund and are 55 or older on March 1, you will still be able to ac­cess your full prov­i­dent fund at re­tire­ment, even those con­tri­bu­tions made af­ter March 1. This, how­ever, only ap­plies if you re­main with the same prov­i­dent fund.

It is also worth not­ing that if your fund is worth R150 000 or less, ir­re­spec­tive of which re­tire­ment prod­uct you are in­vested in, you will be able to take the full amount on re­tire­ment.

Based on these amend­ments, I have to con­fess to be­ing com­pletely con­fused about Cosatu’s re­ac­tion to these changes and its as­ser­tion that this is a “na­tion­al­i­sa­tion” of pen­sions, es­pe­cially be­cause there is no men­tion of com­pul­sory preser­va­tion.

While com­pul­sory preser­va­tion when chang­ing jobs has been dis­cussed, this does not form part of this bill and is, at this stage, not be­ing con­sid­ered.

Trea­sury is hop­ing that these new mea­sures, which also in­clude mak­ing it eas­ier for in­di­vid­u­als to pre­serve their re­tire­ment funds, will see an im­prove­ment in our re­tire­ment sav­ings lev­els with­out hav­ing to leg­is­late fur­ther on preser­va­tion.

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