Treasury moots giving you greater freedom to decide when to retire

You could soon have far more flexibility to choose the date on which you retire.

National Treasury indicated this week that it plans to amend tax legislation to allow you, when you reach retirement age, to transfer the savings in your pension or provident fund to a retirement annuity (RA) fund.

In 2014, tax legislation was amended to allow you to leave your retirement savings in your employer-sponsored retirement fund, where it could continue to grow taxfree until you needed to use them to buy a pension.

Before the amendment, once you reached retirement age, you had to use your savings to buy a pension provided by a life assurance company or invest in an investment-linked living annuity and draw a monthly pension of between 2.5 and 17.5 percent of the annual value of your capital.

Christopher Axelson, the director of personal income tax and savings at National Treasury, told a budget presentation hosted by the South African Institute of Tax Practitioners and the Financial Planning Institute this week that, as a result of increasing longevity, people needed to provide for a longer retirement. In addition, many people reach retirement age and continue working, for example, in a consulting role, he says.

Axelson said some concerns were raised about the 2014 amendment to the Income Tax Act, because it provided only for your retirement savings to stay in the employer-sponsored fund after your retirement.

He told Personal Finance that funds sometimes do not amend their rules to allow you to preserve your savings in this way, because employer funds are not suited to managing members who no longer contribute or move away. For this reason, Treasury is now willing to consider allowing you to move your retirement savings to an RA fund, but not to a pension preservation fund or a provident preservation fund. Axelson says this is because preservation funds allow you to make one lump-sum withdrawal, which would undermine the principle of buying an annuity at retirement.

Axelson says consultations will be held with the retirement industry before the proposed amendment to the legislation is published for comment in June.

According to the Budget Review, Treasury intends to propose the following changes to the Income Tax or Pension Funds Act this year:

• The automatic enrolment of employees in an employer-sponsored retirement fund, an umbrella fund, or RA fund sponsored by a financial services company.

The Budget Review notes that the discussion paper on social security reform, which labour unions demanded before further retirement reforms could be considered, has now been tabled and will be considered by the National Economic Development and Labour Council.

However, while that process is taking place, government would consider automatic enrolment in a retirement fund as an urgent initiative to get more South Africans to save for their retirement.

• Defining an umbrella retirement fund. The Pension Funds Act does not define this kind of fund, in which a number of employers participate.

• Clarifying the extent, purpose and interpretation of the powers of the Registrar of Pension Funds to deal with funds that do not have properly constituted boards.

The Budget Review also notes that Treasury will engage with the Financial Services Board (FSB) on how to deal with unclaimed benefits. This follows a court case in which the for mer deputy executive for Pension Funds, Rosemary Hunter, challenged the FSB’s closure of dormant funds, alleging that former members may have been owed a share of surpluses due to these funds.

• Allowing you longer than 12 months after starting to work for a new employer to decide whether to join an umbrella retirement fund to which your employer contributes.