Three aspects of the retirement reform project have been postponed:
1. The annuitisation of provident funds;
2. The increase of the de minimis threshold; and
3. The tax neutral portability from a pension to a provident fund.
This postponement is made possible by the Revenue Laws Amendment Bill, 2016, that was tabled in Parliament on 24 February 2016.
Summary of Elements That Will Be Implemented On 1 March 2016
1. Fringe Benefits
Contributions by employers on behalf of employees to any type of retirement fund will be fringe benefits and taxed in the hands of the employee.
2. The Employers’ Deduction
The employer will be able to deduct the full contribution to retirement funds for tax purposes.
3. The Employees’ Deduction
Contributions by members of pension funds, provident funds and retirement annuities will afford such members a deduction for tax purposes to the value of 27.5% of either the higher of remuneration or taxable income. The value of this deduction in terms of the new section 11(k) of the Income Tax Act will be capped at R350 000 per annum. Disallowed contributions will be carried over to the following year of assessment, but will again be subject to the annual limits. At the date of the member’s retirement, the sum of the previously disallowed contributions will be deducted against any lump sum benefit paid out to the member and if there are remaining previously disallowed contributions thereafter, these will be deducted against compulsory annuity income.
4. Commutation at Retirement
Members of pension funds, pension preservation funds and retirement annuities may only commute a maximum of one third of their retirement benefit and are obliged to purchase an annuity with the remaining two thirds, UNLESS the full value of the retirement benefit is less than R75 000 per fund. In such a case, the member is permitted to commute the full value of the retirement benefit subject to taxation in terms of the retirement tax table. The threshold for commuting living annuities is set in the Government Gazette and remains either R50 000 or R75 000.
The compulsory annuitisation of provident funds + the raising of the de minimis threshold to R247 500 + tax neutral portability from a pension to a provident fund have been postponed until 1 March 2018.