Par­lia­ment hes­i­tates on prov­i­dent funds as Cosatu digs in on so­cial se­cu­rity re­form

Weekend Argus (Saturday Edition) - - PERSONALFINANCE - LAURA DU PREEZ

Par­lia­ment’s stand­ing com­mit­tee on fi­nance has post­poned to next week its de­ci­sions on the im­ple­men­ta­tion of uni­form tax de­duc­tions for all re­tire­ment fund mem­bers and the re­quire­ment that prov­i­dent fund mem­bers must buy a pen­sion at re­tire­ment.

This fol­lowed a state­ment this week by labour union fed­er­a­tion Cosatu, which said the im­ple­men­ta­tion of these changes to the In­come Tax Act by way of a 2013 amend­ment was “a dec­la­ra­tion of war on work­ers” by the Na­tional Trea­sury.

The changes, due to come into ef­fect on March 1 next year, in­tro­duce a tax de­duc­tion for con­tribu- tions made to any re­tire­ment fund of up to 27.5 per­cent of the higher of your tax­able in­come or remuneration – with an an­nual cap on the de­duc­tion of R350 000.

In ad­di­tion, mem­bers of prov­i­dent funds, who can cur­rently with­draw all their sav­ings at re­tire­ment, will be re­quired – as are mem­bers of pen­sion funds – to buy an an­nu­ity (monthly pen­sion) with two-thirds of their sav­ings at re­tire­ment. This re­quire­ment is com­monly re­ferred to as an­nuiti­sa­tion.

Par­lia­ment is now be­ing asked to de­cide whether to go ahead with the im­ple­men­ta­tion of the al­ready- leg­is­lated amend­ments next year (but with a higher thresh­old for an­nuiti­sa­tion, be­low which re­tire­ment fund mem­bers will not be re­quired to buy a pen­sion), or to de­lay im­ple­ment­ing the re­quire­ment to buy an an­nu­ity un­til 2018.

If Par­lia­ment chooses to de­lay an­nuiti­sa­tion un­til 2018, prov­i­dent fund mem­bers will re­ceive a higher tax de­duc­tion for their con­tri­bu­tions next year and a re­duced de­duc­tion in 2017 if they are still not pre­pared to use two-thirds of their fu­ture con­tri­bu­tions to buy an an­nu­ity at re­tire­ment.

Un­der the re­forms, prov­i­dent fund mem­bers will con­tinue to have the right to take as a lump sum when they re­tire the amount saved in their funds be­fore the date of im­ple­men­ta­tion, and mem­bers over the age of 55 on March 1 next year will be able to take all their sav­ings as a lump sum.

Cosatu says the new tax de­duc­tions cou­pled with an­nuiti­sa­tion are meant to “co­erce work­ers to save”. It had de­manded the re­lease of a com­pre­hen­sive so­cial se­cu­rity re­form dis­cus­sion doc­u­ment be­fore it will con­sider the re­tire­ment re­forms.

MORE TIME

This week, Par­lia­ment’s fi­nance com­mit­tee chair­man, Yunus Car­rim, gave mem­bers of the com­mit­tee more time to con­sult with their par­ties be­fore de­cid­ing how to vote on Tues­day next week, with a view to the bill go­ing be­fore the Na­tional As­sem­bly on Wed­nes­day.

The changes to the In­come Tax Act were passed by Par­lia­ment in 2013 for im­ple­men­ta­tion in March this year, but last year the Act was amended to de­lay im­ple­men­ta­tion to March next year to al­low for fur­ther con­sul­ta­tion with unions through the Na­tional Eco­nomic De­vel­op­ment and Labour Coun­cil (Ned­lac).

Na­tional Trea­sury has told the com­mit­tee that its con­sul­ta­tions have not re­sulted in any progress and Cosatu has stuck to its de­mands.

Trea­sury of­fi­cials have also said that the tax changes and an­nuiti­sa­tion are in line with the so­cial se­cu­rity pro­pos­als, but the so­cial se­cu­rity pro­pos­als are com­plex and fur­ther work has to be done be­fore the pa­per can be re­leased.

At this week’s par­lia­men­tary hear­ing, Trea­sury re­sponded to pub­lic com­ments on the lat­est pro­pos­als around the tim­ing of the im­ple­men­ta­tion of uni­form tax de­duc­tions and an­nuiti­sa­tion.

The fi­nance com­mit­tee heard that there were 11 sub­mis­sions on the pro­pos­als. Eight favoured the pro­posal of pro­ceed­ing with the changes with a higher an­nuiti­sa­tion thresh­old of R247 500, while two wanted the re­forms post­poned un­til the pa­per on com­pre­hen­sive so­cial se­cu­rity was re­leased and dis­cussed, and one said the re­forms should be de­layed to March 2017 to al­low more time for con­sul­ta­tion.

In its re­sponse, Trea­sury says it will be dif­fi­cult to im­ple­ment so­cial se­cu­rity re­forms in a sin­gle step. They will have to be im­ple­mented in­cre­men­tally over a num­ber of years. It says de­lay­ing the im­ple­men­ta­tion of the re­tire­ment re­form amend­ments will mean that mem­bers of re­tire­ment funds will “con­tinue to be treated un­fairly with re­gard to higher charges, de­nial of tax de­duc­tions for prov­i­dent fund mem­bers, and poorly de­signed an­nu­ity poli­cies”.

Fur­ther, the tax­a­tion sys­tem will con­tinue to ben­e­fit higher earn­ers who re­ceive big­ger tax de­duc­tions than those on lower in­comes, it says.

Dis­miss­ing com­ments about the fail­ure to in­crease the R350 000 limit on de­duc­tions in line with in­fla­tion, Trea­sury said this could be ad­dressed in next year’s Bud­get.

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