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Possible delay in compulsory pensions for provident fund members

Personal Finance
Members of provident funds may enjoy another year of tax deductions for contributions to their funds without being forced to buy a pension with these tax-incentivised savings, Ismail Momoniat, the deputy director-general at National Treasury, says.

At the post-budget briefing this week, Momoniat told Personal Finance that discussions about what is known as compulsory annuitisation are continuing within the National Economic Development and Labour Council.

In March last year, a tax deduction for contributions to a provident fund was introduced for a few million members.

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Government had hoped to compel provident fund members to use their tax-incentivised savings accumulated from that date to buy a pension at retirement, in the same way that pension fund members are obliged to do.

Generous concessions were made to allow provident fund members to continue at retirement to withdraw in full any savings accumulated at that date, to exempt savings made after that date (but not exceeding R247000) from being used to buy a pension, and to enable members close to retirement (those aged 55 or older on March 1 last year) to continue to withdraw their savings in full.

These concessions meant that many provident fund members would not be forced to use their retirement savings to buy a pension for more than a decade, but some trade unions still raised objections to compulsory annuitisation. As a result, the implementation of these measures was delayed until March next year.

Momoniat said this week that the measures may be delayed further. However, he said that members of provident funds could not continue indefinitely to enjoy the tax deduction on contributions without agreeing to use their retirement savings to buy a pension at retirement.


BUDGET 2017 FAST FACTS: RETIREMENT

• The rate at which you can claim a tax deduction for contributions to a retirement fund remains 27.5 percent of the greater of your remuneration or taxable income. The tax deduction is capped at  R350 000 for the tax year.

• There was no change to the tax rates on the lump sums you can withdraw from your retirement fund at retirement, and you take still take up to R500 000 tax-free.

• There was no change to the tax rates on the lump sums you can withdraw from your fund on resignation. You can still take the first R25 000 tax-free.

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