Options for later retirees
DEFERRING: GROW FUNDS WHILE CARRYING ON WORK
As people work longer more avenues to save are needed.
Several proposed changes to the tax treatment of retirement funds will offer retirees more options. More and more people are continuing working on a contract basis after having reached retirement age and choose to “defer” their actual retirement date.
The proposed expansion of the funds for the transfer of retirement benefits were announced in the recently published Taxation Laws Amendment Bill (TLAB).
National Treasury said in the explanatory memorandum accompanying the TLAB, amendments in 2017 allowed employees to transfer their benefits from a pension or provident fund into a retirement annuity fund when they reached retirement age, as defined in the rules of the fund, but before they actually retire.
However, the act only allows transfers from a pension or provident fund to a retirement annuity fund. Transfers to pension preservation and provident preservation funds have been excluded as it was considered that it would be administratively burdensome.
During public consultations treasury was informed by industry players that the system changes required for the transfers to pension and provident preservation funds would not be onerous.
It is now proposed to allow for transfers from a pension or provident fund to a pension or provident preservation fund before people actually retire.
“These amendments increased the choice of available retirement funds in cases where individuals decided to postpone retirement,” treasury said.
Ronald King, head of public policy and regulatory affairs at PSG Wealth, says they fully support the proposed changes announced in the TLAB.
“Retirees can earn income from another source while they still can, allowing them to only draw down on their retirement savings at a later stage. This increases the chances of them having enough to support them when they do retire.”
King says in terms of the rules of preservation funds people are allowed to make a single withdrawal from the fund before retirement.
However, this withdrawal will not be permitted on the money that has been transferred to the preservation fund on the retirement date from the fund.
“Put differently if a person has before-retirement and after-retirement money in a preservation fund he will only be able to withdraw the before-retirement money. The only way to access the money is to officially retire from the fund,” explains King, also a member of the South African Institute of Tax Professionals (SAIT).
Another proposed change relates to the alignment of preservation funds when South Africans emigrate, or when people working in South Africa leave the country after their working permit expires.
King explains that South Africans who officially emigrated from South Africa were allowed to withdraw the funds from their retirement unity fund, paid tax on it and take the remaining money with them out of the country.
A similar provision exists for expatriates when they leave South Africa at the expiry of their work visa.
Treasury says in terms of current legislation only members of retirement annuity funds are able to access and withdraw the full value of their post-tax retirement benefits upon emigration or repatriation. Members belonging to a pension preservation fund or a provident preservation fund are restricted from doing so.
We fully support the proposed changes announced
Ronald King PSG Wealth