In a statement released on 16 February 2016 the Minister of Finance indicated that Government was willing to be flexible on the implementation of compulsory annuitisation. This was done in an attempt to find solutions to the concerns raised by Cosatu and other trade unions relating to the implementation of T-Day on 1 March 2016
This proposal was accepted by cabinet yesterday, 17 February 2016.
The proposal is that T-Day be implemented as planned with the exception of the requirement that provident fund members are compelled to buy an annuity with at least two thirds of their retirement benefits (in respect of contributions made after T-Day). To be able to give effect to the proposal, a new Act will be passed that will apply with retrospective effect. We hope to receive more clarity on a range of technical aspects in the National Budget Speech on 24 February 2016.
Click here to read the statement.
What will this mean for retirement funds and employers?
- All the tax changes required to the pay roll and the pay slips must be implemented on 1 March 2016.
- Most members will enjoy contribution flexibility for the first time and will be able to make greater contributions that are tax deductible – if the fund rules allow for this.
- Provident fund members that make member contributions may now qualify for a tax deduction and may therefore have an increased take home pay. Top earners will not be allowed a tax deduction beyond the new maxima and may experience reduced cash flow.
- Provident fund administrators do not have to create two accounts for each member. One in which all fund credits as at the end of February 2016 are paid and another in which all contributions made after 1 March 2016 are credited. This is the requirement that has been postponed for a two year period.
- Transfers from pension funds to provident funds will not be allowed during the next two years to avoid pension fund members from transferring to a provident fund to access a lump sum at retirement.
Should you have any queries, please do not hesitate to contact your benefit consultant directly.