- Posted by Roger Hendricks
- On 02/03/2016
- 0 Comments
Parliament recently passed the retirement reform proposals and the changes will become law from 1 March 2016. The key changes are:
Tax deductibility to pension/provident and/or RA funds (together) will be the lesser of:
R350 000; or
27.5% of the higher of the person’s remuneration or taxable income. Note that this excludes taxable capital gains.
From 1 March 2016 there will be forced annuitisation of provident funds. But:
This will only apply to contributions made after 1 March 2016. All provident funds will therefore have two accounts: pre-1 March 2016, and all growth thereon, which stays under the old rules, and post-1 March 2016 money, and growth thereon, which falls under the new rules. Vested rights in provident funds up to 1 March 2016 are therefore fully protected.
Anyone aged 55 on 1 March 2016 will not have to annuitise, as long as they stay in the same provident fund that they were in on 1 March 2016.
The “de minimus” amount, where the full fund value can be cashed in, has been increased to R247 500.
There has unfortunately been much confusion created by certain sectors of the media. It is important to stress that there is no forced preservation of retirement fund money on resignation. In addition, the fact that money in provident funds up to 1 March 2016, and the growth thereon, will still be protected and subject to the old rules, together with the fact that the “de minimus” amount for cashing in funds has been increased to R247 500, will mean very few people will be adversely affected. It is also important to stress that many people will be better off, because of the increased deduction limits which will allow bigger contributions to retirement funds.
The changes will bring in two fantastic business opportunities for advisers from 1 March 2016:
The RA limit has been increased from 15% to 27.5%. That means all clients currently contributing 15% of taxable income to an RA can increase their contributions to 27.5%, as long as they don’t exceed the R350 000 cap.
The distinction between retirement funding/non-retirement funding income has been removed. That means all clients that were members of a pension/provident fund, and therefore precluded from taking out an RA, can now “top up” to the limit of 27.5%.
Example: Fred is a member of a pension fund. His employer contributes 7.5% of his salary, and he contributes 7.5%. He can now make an extra contribution to an RA of up to 12.5%, as long as he does not exceed the R350 000 cap.