RETIREMENT REFORM IMPLICATIONS OF THE NEW ACT

RETIREMENT REFORM IMPLICATIONS OF THE NEW ACT

The Taxation Laws Amendment Act 23 of 2015, which was promulgated on 8 January2016, kicks off the long-awaited retirement reform process. The aim of this first fledgling step towards broad reform is to harmonise the tax deductibility of contributions to all types of retirement funds, as well as provide for the compulsory annuitisation of at least two- thirds of a retirement benefit derived from a provident fund, subject to vested rights to full commutation. So retirement fund reform is finally upon us.

Main provisions that will apply from 1 March 2016 are:

– Employer contributions will be taxed as fringe benefits in the hands of employees.

– Employees may deduct up to 27.5% of remuneration or taxable income as contributions (by employer/employee) to pension, provident and retirement annuity funds, subject to a R350 000 annual cap.

– Not more than one-third of the retirement benefit from a provident fund may be taken as a lump sum. However, this restriction does not apply to pre-March 2016 contributions (and growth thereon). Provident fund members who are 55 years or older on1 March 2016 will be able to commute the full retirement benefit, including contributions made on or after1 March 2016 (and growth thereon), to the provident fund of which he/she was a member on1 March 2016.

– The commutation threshold upon retirement is increased to R247 500 (from the current threshold of R75 000). If a member’s retirement benefit is R247500 or less, they will be allowed to take their whole benefit as a cash lump sum.

– There will be tax-free portability between all tax-approved funds, including pension to provident fund transfers.

Referance: Mike Lledo CA(SA)