Annuitisation of provident funds to proceed on 1 March 2016
- Posted by Roger Hendricks
- On 01/14/2016
- 0 Comments
The National Assembly recently approved the Taxation Laws Amendment Bill which confirms that from 1 March 2016 future retirement savings in provident funds will be subject to compulsory annuitisation (as pension funds savings already are), but importantly also confirms that this will not interfere with members’ rights in relation to savings up until that date.
- Pension funds and retirement annuity funds are bound by mandatory ‘annuitisation’ which requires a member to devote at least two-thirds of his or her benefit upon retirement to buying an annuity with one-third available to be taken as a lump sum. There is currently no mandatory minimum annuitisation for provident fund members, who can take their full retirement benefit as a lump sum.
- Different rules apply regarding the deductibility of employer and employee contributions to pension, provident and retirement annuity funds. For example, employee contributions to a provident fund do not currently qualify for deduction.
- Replacing the different rules regarding the deductibility of employer and employee contributions to retirement funds with one set of rules governing contributions to the different types of funds. All employer contributions to retirement funds will become taxable fringe benefits, but the employee will effectively be able to claim a deduction in respect of member and employer contributions to all retirement funds, provided that the deduction may not exceed the lesser of 27.5% of taxable income/ remuneration, or ZAR 350 000.
- Introducing minimum compulsory annuitisation in provident funds:
- The annuitisation will only apply in respect of future contributions (savings) made from 1 March 2016.
- Members who are 55 years or older at the time that the annuitisation rules are introduced are exempted from the new rule.
- Where the amount saved from 1 March 2016 onward does not exceed ZAR 75 000 at the time it becomes available, no portion needs to be annuitised.