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Impact on the Retirement Fund Industry and Members

By Anton Swanepoel, 21 February 2019

Finance Minister Tito Mboweni’s 2019 Budget does not introduce significant changes to the retirement fund industry, but the effect of the ‘belt-tightening’ measures will be felt by all retirement fund members.

The Budget will be remembered as one of the few instances where no adjustment was made to the tax tables and the effect of ‘bracket creep’ is expected to raise just more than R12 billion. There were also no inflationary adjustments to the medical tax credits and once again, disappointingly, no adjustment to the retirement/death/withdrawal lump sum tax tables.

The tax measures for the 2019 Budget are designed to raise an estimated total of R15 billion in additional revenue in 2019/20.

The proposals outlined below are relevant to the employee benefits industry.

Retirement Reform

The Minister has confirmed that government, business, labour and civil society have engaged extensively on the first draft of the comprehensive social security paper through the National Economic Development and Labour Council (NEDLAC). The process should come to a close in 2019, after which the paper will be revised and released for broader public consultation.

The NEDLAC is also engaging on retirement reform issues related to provident fund annuitisation, which has been postponed to 2021. The outstanding conduct standards are being finalised to support the full implementation of the retirement fund default regulations on 1 March 2019.

Specific Tax Changes Proposed

Exemption relating to annuities from a provident or provident preservation fund

Once a member of a retirement fund retires and receives an annuity, any contributions to the retirement fund that did not qualify for a deduction when determining the member’s taxable income, are tax-exempt and taken into account when calculating tax on any lump sum benefit or annuity payments.

This exemption currently does not apply to annuities received from a provident or provident preservation fund. To encourage annuitisation (regular payments in retirement), it is proposed that this exemption be extended to provident and provident preservation fund members who receive annuities. The exemption would apply for contributions made after 1 March 2016.

Tax treatment of bulk payments to former members of deregistered funds

Retirement funds are permitted to make certain extraordinary payments to their members tax free, provided that these payments are approved by the Minister of Finance in a Government Gazette notice. In 2009, the Minister of Finance issued a notice in Government Gazette No. 32005 approving retirement funds to make tax-free payments of "secret profits", surplus payments and unclaimed benefits.

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