Treasury on Amendment to the Taxation Laws Amendment Act

Tax benefits continue, annuitisation postponed

Following the decision by Cabinet yesterday to table a legislative amendment to the Taxation Laws Amendment Act, and the media briefing by Minister Jeff Radebe; National Treasury would like to provide further details.

Cabinet has noted the concerns that have been raised in respect of the retirement reforms relating to the requirement to purchase an annuity at retirement (i.e. to receive a regular monthly income during retirement instead of a lump sum) for provident fund members.

Despite extensive consultation processes since 2012, Government is proposing that the annuitisation requirement for provident fund members be postponed for two years to allow for further consultation with key stakeholders.

Government has already initiated this consultation process, by requesting a special meeting with all NEDLAC social partners, which took place this Monday, 15 February 2016. Government has also engaged with non-NEDLAC stakeholders like NUMSA via separate section 77 (of the Labour Relations Act) hearings.

It should be noted that the 2015 Tax Laws Amendment Act (and the 2013 and 2014 Acts) provisions relating to retirement will come into force on 1 March 2016, except for the annuitisation implementation date and related provisions.

The tax harmonisation reforms will therefore continue to be implemented as scheduled on 1 March 2016. Accordingly, the following changes will be introduced through an urgent tax amendment bill, to

be tabled next week:

The bill will propose to Parliament to postpone the annuitisation requirement for provident funds for two years, until 1 March 2018.

Provident fund members will not be required to annuitise contributions to their funds that were made before 1 March 2018.

To ensure the integrity of the retirement system, the ability to transfer tax-free from pension fund to provident fund will also be delayed until 1 March 2018. Clarity on possible misinterpretations will also be provided in the bill, to ensure that payroll administrators apply the law in line with original intentions.

The following amendments will continue as scheduled from 1 March 2016:

The tax deduction for contributions to all retirement funds (including provident funds) will increase to 27.5 per cent of the greater of taxable or remuneration, up to a cap of R350 000 per year, from 1 March 2016.

The minimum threshold required for annuitisation for pension and retirement annuity funds will still be increased...