Compulsory annuitisation of provident fund benefits postponed
JOHANNESBURG – Government has confirmed that the compulsory annuitisation of provident fund benefits, which was due to take effect on March 1, will be postponed by two more years.
Compulsory annuitisation, which is part of a broader set of reforms that were signed into law by president Jacob Zuma in January, would have required provident fund members younger than 55 to annuitise two thirds of their pension at retirement insofar as these benefits were accumulated after March 1 and exceeded an amount of R247 500. At the moment, provident fund members can take their whole benefit as a cash lump sum at retirement.
The amendment would have brought provident funds in line with pension funds and retirement annuities, which are already required to annuitise.
The postponement is only applicable to compulsory annuitisation. All tax related measures, including the harmonised 27.5% tax deductions on contributions to any retirement fund, will still be implemented on March 1 this year. Deductible contributions will be capped at R350 000.
“We will look at a formula that will allow a technically appropriate way to allow the tax deduction to provident fund members for two years,” Treasury said.
An amendment bill to postpone the commencement date of compulsory annuitisation from March 1 2016 to March 1 2018 will be tabled in Parliament in the next few days.
Sizwe Pamla, national spokesperson for Cosatu, said while it took note of the postponement, workers would never agree to negotiate tax reforms in the absense of a Comprehensive Social Security paper.
“Until such time that we have a commitment from government that they will expunge the aspects of preservation and annuitisation from the law, we will not be satisfied. We will continue to intensify our mobilisation until we get a clear resolution on this matter.”
According to data from the Financial Services Board, there are roughly 5.8 million provident fund members, 4.2 million pension fund members and 4.1 million retirement annuity members in South Africa. Some members belong to more than one of these vehicles.
In a statement issued on Thursday, cabinet said a number of organisations and individuals have expressed concern about the implementation of the new changes.
“It is apparent that despite the extensive consultation processes, which were embarked upon before the law was passed, that those concerns still exist and that those concerns have to be addressed urgently to ensure that when the law commences the changes to the provident fund benefits will be implemented smoothly and efficiently,” it said.
The reforms were initially scheduled for implementation in March last year, but were postponed by a year to allow for further consultation.
