Johannesburg - The government yesterday made an about-turn on the controversial retirement reform plans, announcing that the implementation of the annuitisation requirement for provident funds would be deferred for two years to allow for further consultations.
The government’s change of stance came amid pressure from trade union federation Cosatu, which threatened strikes if the reforms, which barred people from cashing in their pensions and instead allowed the withdrawal of only a third of the retirement savings, were not abolished.
Finance Minister Pravin Gordhan said the 2015 Tax Laws Amendment Act provisions on retirement would come into effect as scheduled next month, but the government would postpone the annuitisation requirement to March 2018.
Gordhan told journalists that more consultation was needed to clear the confusion on the impact of the reform.
He insisted, however, that the process would not affect South Africa’s credit ratings.
Colen Garrow, an economist at Lefika Securities, said the impact of the proposed reform was reflected by mass resignations, particularly in the public sector, as reported in the first quarter of 2015 labour statistics. Garrow said the numbers bounced back in the second quarter after civil servants cashed in their benefits and regained employment in the public service.
“I can see what the government is trying to do, compelling savings, and making the public less dependent on the state when the individual reaches retirement age,” Garrow said.
Ettiene Retief, the chairman of the national tax and Sars stakeholders committees at the South African Institute of Professional Accountants, said a further delay from what we had perpetuated problems.
“It allows people to take funds, they will look to government and say: Help me, I don’t have retirement money,” Retief said.
The National Treasury warned that if no agreement was reached on the annuitisation in the next two years, this tax benefit to provident fund members would be reviewed to achieve fairness between all retirement funds.
Cosatu described the U-turn as an indication that the government had acknowledged that the implementation of the reforms would have been wrong. But the trade union federation said while this was welcomed, the decision was not yet a final and ultimate solution to the impasse.