Retirement Reform Amendment

The retirement reform amendment, contained in the 2015 Taxation Laws Amendment Act, aims to align retirement funds over the long
term. As part of the implementation of the Act, the following changes will be effective from 1 March 2016.

Harmonisation of provident fund benefits
Contributions made to provident funds before 1 March 2016, and all future contributions made by investors who will be 55 or older as at 1 March 2016, will not be affected by the harmonisation of provident fund benefits. At retirement, the full market value of these contributions (the vested benefit) can still be taken as a cash lump sum. Contributions made after 1 March 2016, by investors who will still be younger than 55 as at 1 March 2016 (the non-vested benefit), will now receive the same treatment at retirement as contributions to other retirement products, i.e. the investor will be allowed to take up to a third of the benefit in cash, while the remaining benefit will
have to be used to purchase a living or life annuity.  

Increase in the commutation threshold at retirement
The commutation threshold (de minimis) will increase from R75 000 to R247 500. This means that, if an investor’s non-vested benefit at retirement is less than or equal to R247 500 across all of their accounts in a specific product , the full benefit may be taken in cash. As mentioned above, full withdrawals can be made from vested accounts. The current tax treatment will still apply.

The threshold to withdraw from a living annuity will remain unchanged at R50 000 for investors who took a cash portion at retirement, or R75 000 for investors who did not take a cash portion. Clients who wish to make use of the increased de minimis should therefore do so at retirement as it is not currently available in a living annuity. 
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Tax deductions on contributions to retirement annuities 
The following table summarises the changes to tax deductions on contributions to retirement annuities:
    
CURRENT 
NEW
​Tax deductions on contributions will be limited to the greater of:
  • 15% of non-retirement funding income, or  
  • R3 500 less deductible pension fund contributions, or
  •  R1 750
27.5% of the greater of taxable income or remuneration (excluding any retirement fund lump sum, withdrawal and/ or severance benefits) per year, subject to a ceiling of R350 000 per year. 


​Retirement annuity pay outs to non-residents

​National Treasury is changing the definition of ‘retirement annuity fund’ to allow foreigners who leave South Africa at the end of their working visa or visit to withdraw a lump sum benefit prior to retirement. The supporting documents required by SARS will be copies of the Tax Clearance Certificate, the investor’s passport indicating an exit from South Africa, and the visa showing the date of expiry. The requirements for South African residents who want to withdraw from their retirement annuities due to emigration will remain unchanged.
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Retirement fund contributions and estate duty 
You may nominate a beneficiary on your retirement annuity. In the event of your death, the money in your retirement annuity account is paid out to your beneficiary, and you do not incur any estate duty (a form of tax).
Source: Allan Gray