Last-minute changes to retirement reform
On Thursday, Treasury announced that certain provisions relating to retirement reform would not go ahead on March 1. The compulsory annuitisation (purchasing of income) of provident funds on retirement will be postponed until March 1 2018, and the ability to transfer tax-free from a pension fund to provident fund will also be delayed until then. However, other proposed changes will go ahead:
The tax deduction for contributions to all retirement funds (including provident funds) will increase to 27.5% of taxable income or remuneration – whichever is greater – up to a cap of R350 000 per year from March 1 2015.
As from March 1 2015, pension fund members who have R247 500 or less on retirement will not be required to purchase an annuity income on retirement and can take their full benefit as a lump sum. This has been increased from the current level of R75 000.
Members of pension funds (not provident fund members), such as public servants who are members of the Government Employees’ Pension Fund, have not been affected by the changes because the rules of pension funds continue to apply.
The rules of pension funds have always stated that, on retirement, one is required to purchase an annuity income, therefore members of pension funds will still be required, on retirement, to purchase an annuity income with two-thirds of their retirement fund.
As compulsory preservation was never part of the proposed changes, members of pension or provident funds who resign will still be able to cash in all their savings when they resign, subject to current taxation laws.