President Jacob Zuma has signed the Revenue Laws Amendment Act into law to postpone annuitisation for provident funds, the National Treasury said on Tuesday.
The new act affects provident fund members only, by delaying both the requirement for them to purchase an annuity at retirement and the ability to transfer accumulated retirement savings between all retirement funds tax-free until March 1 2018.
All other aspects of the retirement reform amendments that were contained in the Taxation Laws Amendment Acts proceeded as scheduled on March 1 2016, Treasury said in a statement on Tuesday.
Zuma was forced to backpedal on provisions in the Tax Amendment Act that compel South Africans to put two-thirds of their provident fund savings into a retirement annuity.
This followed a threat from the Congress of South African Trade Unions to pull its support of the African National Congress ahead of the local government elections this year.
The tax provision meant that retirees would be allowed to take only one-third of the amount in cash, while they are currently entitled to the full amount.
“Government is flexible on the implementation of annuitisation for provident funds, and proposes to postpone implementation for two years, from March 1 2016 to March 1 2018,” the Treasury said in February.
When Zuma signed the Taxation Laws Amendment Act late last year he was unaware of Cosatu’s objections to the provident fund proposals, Minister in the Presidency Jeff Radebe said in February.
The amendments that became effective on March 1 2016 aligned the tax deduction between all retirement funds, with increases in the available deductions for retirement annuity funds and provident funds to encourage individuals to save for their retirement, Treasury explained on Tuesday.
“The changes include a deduction for employee contributions to provident funds for the first time, and many members of provident funds who make their own contribution to their provident fund would have seen an increase in their net pay position due to this additional tax deduction. A monetary cap on the deduction was included to ensure that the benefit is distributed equitably,” it said.
“As a result of the postponement, provident fund members will now, for the first time, enjoy a tax deduction on all contributions made by the member, without being required to annuitise for the next two years.
“The two-year delay is to allow for further consultations at Nedlac (the National Economic Development and Labour Council) and with other stakeholders. The requirement to purchase an annuity with two-thirds of your retirement assets at retirement for provident fund members would have completely aligned the tax and annuitisation treatment across all retirement funds.
“However, this act has delayed this particular provision on annuitisation due to considerable confusion and misinformation amongst the public and opposition from some of the labour unions.
“The Standing Committee on Finance included an additional amendment in the act to compel a consultations process whereby government must continue to engage with all relevant stakeholders on the annuitisation requirement and formally report back to Parliament before end of August 2017.
“Government is committed to further detailed and constructive engagement with labour unions and other stakeholders on the requirement to purchase an annuity for provident fund members, and will facilitate these discussions by publishing the paper on comprehensive social security.
“While engaging on the details of a suitable arrangement that will benefit members in retirement, government must also safeguard the principles of the tax system, and therefore continuing to allow a full tax deduction for contributions to particular retirement funds that are not required to purchase an annuity upon retirement would be inequitable.”