On 16 October 2014 National Treasury released a press statement indicating that some of the proposed changes for 1 March 2015 would be delayed. One of the reasons cited for the delay is that many employees who feared that they would not have full access to provident funds on retirement, decided to resign from employment prior to 1 March 2015 in order to obtain full access to their provident fund values upon resignation. This is despite legislation clearly stating that provident fund members contributions made prior to 1 March 2015 would not be subject to the new annuitisation legislation.
In essence whether an employee resigned on 28 February 2015 or after would have had no effect on the member’s ability to access their full portion of provident fund contributions prior to 1 March 2015. It is therefore surprising that government has agreed to delay the implementation of legislation based on misunderstanding.
Most disappointing is the fact that the proposed changes to the tax treatment of retirement fund contributions have also been delayed. For the majority of South Africans seeking a legitimate tax relief in saving towards retirement, this will come as a blow.Ironically, it is the minority of wealthy individuals currently benefiting from the fact that there is no cap on the tax deductions (other than the calculations themselves) on retirement fund contributions. This will continue for at least another year or two.
On a positive note the introduction of the Tax-Free Savings Account seems to be on track and draft regulations are scheduled to be released around the end of October 2014. We will release a legal update on the proposathereafter.
The table below explains some of the major changes that retirement reform plans to introduce.