Implementation 1 March 2016

The Tax Laws Amendment Act, 2013, provided for the harmonisation of the tax treatment of retirement contributions to Pension, Provident and Retirement Annuity funds from 1 March 2015.  It also provided for the compulsory annuitisation of Provident fund benefits, aligning Provident funds to Pension and Retirement Annuity funds.

Following protracted debate and deliberations, on the 26th November 2015 the National Assembly voted in favour of National Treasury’s proposal to align the treatment of benefits from Provident Funds at retirement with those of Pension Funds and Retirement Annuities.

What it All Entails

A new tax regime for retirement funds:

From 1 March 2016, individuals will be able to claim a tax deduction on contributions to a Retirement Annuity, Pension fund or Provident fund of up to 27.5% of the higher of

• total annual remuneration1; or
• taxable income 1 ;  

subject to an overall maximum annual tax deductible contribution of R350 000 per annum.

The transfer of Retirement savings to Provident and Provident Preservation funds from other funds will be tax neutral in all instances.

Alignment of retirement funds:

With effect from 1 March 2016, a maximum of one-third of the retirement benefit from a Provident fund may be taken as a lump sum. The remaining two thirds will have to be applied to purchase an annuity at retirement.

The following exceptions will apply:

• All accumulated savings in the Provident Fund on 28 February 2016 and all future growth on this amount will be protected so that 100% access to these savings may be taken as a lump sum at retirement.
• Provident fund members who are 55 years or older on 1 March 2016 will also be able to take the full benefit, including contributions made after 1 March 2016 and the growth thereon, as a lump sum at retirement.
• A member will be able to commute their full retirement benefit as a lump sum if the fund value does not exceed R247 500. This will be applicable to the total value of all retirement funds – retirement annuities, pension and provident funds.

It is important to note that these changes do not affect the benefit clients currently have of making one (full or partial) withdrawal from their preservation fund before retirement.

1 Excluding any retirement lump sum benefit, retirement fund lump sum withdrawal and any severance benefit.

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