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South Africa Delays Part Of Pension Regime Reforms

by Lorys Charalambous,, Cyprus

24 May 2016

South Africa has promulgated legislation to postpone for two years the requirement for provident fund members to purchase an annuity at retirement, to allow a period for further consultation.

The Revenue Laws Amendment Act 2016 (RLAA) was promulgated on May 20, after its approval by the National Assembly and National Council of Provinces, and its assent by the President.

At present, one-third of retirement savings are generally allowed to be cashed out as a lump sum, with the remaining two-thirds being annuitized. This law applies to all pension fund and retirement annuity fund members, and was to be extended to members of provident funds with effect from March 1, 2016.

The RLAA now postpones the annuitization requirement for provident funds until March 1, 2018. Provident fund members will therefore not be required to annuitize contributions to their funds that were made before that date.

However, all other provisions relating to retirement savings in the 2015 Tax Laws Amendment Act still went into force on March 1, 2016. From that date, for example, the tax deduction for contributions to all retirement funds (including provident funds) increased to 27.5 percent of the greater of taxable income or remuneration, up to a cap of ZAR350,000 (USD22,250) per year; and the minimum threshold required for the annuitization for pension and retirement annuity funds rose from ZAR75,000 to ZAR247,500.

Even though the requirement to annuitize is postponed until 2018, the tax deduction is still being allowed for provident funds while the consultation is undertaken. If no agreement is reached in the next two years regarding annuitization, the National Treasury has said that this tax benefit to provident fund members will then be reviewed to achieve fairness between all retirement funds.

TAGS: individuals | South Africa | tax | investment | pensions | law | retirement | legislation | tax breaks | individual income tax | Africa | Tax

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