Provident fund benefits annuitisation postponed

Changes to the tax treatment of provident funds, introduced as part of broader retirement reforms in 2015 by National Treasury, have again been postponed for further consultation.

Provident funds will be treated the same as pension and retirement annuity (RA) funds requiring the annuitisation – or converting into a series of periodic income payments – of benefits. This has been met with resistance, especially from trade unions.

The change means that on retirement, provident fund members will be permitted to take up to a third of the retirement benefit as a lump sum; the remaining benefits should be preserved.

This will only be applicable to contributions made to a provident fund after the implementation date, most probably March 1 2019.

The initial date for implementation was March 1 2016, which was postponed to March 1 2018.

Association for Savings and Investment South Africa (Asisa) senior policy adviser Rosemary Lightbody says a consequence of the postponement will be that provident fund members who would have had to preserve (annuitise) two thirds of their lump sum benefit upon retirement, won’t have to do so until March 1 2019.

“Asisa holds firm the view that the annuitisation of retirement benefits is in the best interest of all South Africans and does not believe that the postponement of this requirement is in the interests of provident fund members,” she says.

Cosatu has previously stated that no government has a right to unilaterally decide for workers, how and when to spend their retirement savings.

Lightbody says she understands the reasons for the postponements. “Many people rely on receiving a lump sum from their provident fund for various reasons. The unions, in particular, want to understand how the annuitisation of provident funds will fit into the entire social security reform package.”

The annuitisation of retirement benefits is in the best interest of all South Africans and [Asisa]does not believe that the postponement of this requirement is in the interests of provident fund members. Rosemary Lightbody Association for Savings and Investment SA