An apparently hastily scribbled note from National Treasury titled, Proposal on Postponing the Annuitisation Requirement for Provident Funds for Two Years, confirmed industry concerns that the Taxation Laws Amendment Act, which was promulgated in January this year, and is due to take effect on 1 March 2016, will be postponed.
This was subsequently followed by a formal media release from the Ministry of Finance that provided clarity on what will change, and what not:
- The bill will propose to Parliament to postpone the annuitisation requirement for provident funds for two years, until 1 March 2018.
- Provident fund members will not be required to annuitise contributions to their funds that were made before 1 March 2018.
- To ensure the integrity of the retirement system, the ability to transfer tax-free from pension fund to provident fund will also be delayed until 1 March 2018. Clarity on possible misinterpretations will also be provided in the bill, to ensure that payroll administrators apply the law in line with original intentions.
The following amendments will continue as scheduled from 1 March 2016:
- The tax deduction for contributions to all retirement funds (including provident funds) will increase to 27.5 per cent of the greater of taxable or remuneration, up to a cap of R350 000 per year, from 1 March 2016.
- The minimum threshold required for annuitisation for pension and retirement annuity funds will still be increased from R75 000 to R247 500.
- Aside from the issues covered in the urgent tax amendment bill, all other provisions legislated in the 2015 Tax Laws Amendment Act (and all other tax laws) will come into force on 1 March 2016.
Last week we reported on grave concerns expressed by ASISA on this matter:
We firmly believe that yet another postponement would not only be a grave injustice to our citizens, but also create more policy uncertainty which our country can ill afford at this time when our country is determined to avoid another downgrade in our credit rating.
It has since reacted positively to the decision to continue with the other proposals.
ASISA also commented on costly systems enhancements which were well under way for implementation from 1 March.
All is not doom and gloom. The decision to continue with the amendments concerning tax deductions is a step in the right direction to encourage savings, which is at an all time low. The fact that it will apply to provident fund contributions as well will hopefully convince the unions of the practical benefits of the new dispensation.
An article in Moneyweb quotes Old Mutual Investment Group chief economist, Rian le Roux, as saying that the biggest crisis facing South Africa is one of confidence in the South African economy, which is at similar levels to where it was pre-1994. “People are in despair about the prospects for the economy,” he said.
It will be very interesting to see how international rating agencies react to the decision to postpone annuitisation of provident funds, particularly in view of the fact that it was discussed in great detail with all relevant parties.
If it is perceived as another sign of government indecisiveness in view of political pressure, this is likely to be another step in the wrong direction towards junk status. Hopefully, Pravin Gordhan’s rejection on Thursday of Cosatu’s suggestion that the Treasury dump its compulsory annuitisation will be seen as a positive step.
A lot will depend on Wednesday’s budget speech. Thank goodness we have a man of substance to deliver it.