Nicolette Dirk, finance writer, Justmoney.co.za
Last week the National Treasury published two papers that provide details on the proposed retirement reforms and tax free savings products as announced by the Minister of Finance, Pravin Gordhan, in his budget speech last month.
The papers follow on the initial overview document on retirement reform, titled “Strengthening Retirement Savings: Overview of the 2012 Budget Proposals” (May 2012).
The Minister of Finance first announced the savings and retirement reform process in the 2012 Budget. The initial aim was to ensure that the savings and retirement system serves the needs of South Africans better and more fairly than in the past, by providing more appropriate products.
The aim of the announcement was to encourage South Africans to save in order to reduce their vulnerability, both before and after retirement.
What kinds of amendments were made?
Some of 2012’s proposals were implemented last year and they included amendments to the Pension Funds Act to strengthen the governance of retirement funds by allowing the Registrar to impose proper requirements on fund trustees.
The non-payment of contributions to pension funds by employers has been criminalised. Delinquent employers have been made personally liable for their non-payment of contributions and whistle-blowers are better protected.
The Registrar of Pension Funds can also impose new standards for the governance of retirement funds and is expected to do so by notice in the near future.
How things stand now
From 1 March 2015 onwards, new contributions to any retirement fund will be subject to the same tax dispensation when members retire. This means that no more than one-third of your funds may be taken in cash.
The rest must be taken in the form of a pension. However members who have contributed to provident funds before 1 March 2015 will still be able to receive their benefits in respect of those contributions in the form of lump sums at retirement.
Provident fund members over 55 on that date will be able to receive lump sum benefits in respect of contributions made to those funds after 1 March 2015.
The first low-income retirees from provident funds will begin to be affected by the new rules in 2020 to 2025. The transition to the new system will only be complete in around 2055, but it is hoped that members will voluntarily elect to purchase annuities with their retirement lump sums before then.