ANNOUNCEMENT! Employers note the following:
TAX AND RETIREMENT REFORM — ‘COMPULSORY ANNUITISATION’ TO BE POSTPONED FOR 2 YEARS
The Minister of Finance, on the 17th of February 2016, confirmed the postponement of certain elements of the Taxation Laws Amendment Act, 2015 which was set for implementation on 1 March 2016 (‘T’ day). He outlined that he wanted a way forward, and stated that Government was willing to be flexible on the implementation of annuitisation.
The Minister proposed the following points as the way forward
National Treasury is now proposing that the ‘compulsory annuitisation’ element affecting provident funds and the tax-free transfer between pension and provident funds (points 2 and 3 above) be postponed for two years. The postponement is in response to some stakeholders’ call for a deferral of implementation of the Taxation Laws Amendment Act.
The Minister, in a proposal document dated 16 February 2016, proposed the following points as the way forward:
Social Security Reform Paper
The Minister noted that SA does have a social safety net, but it has some gaps in it. He agreed that the social security reform papers are to say what is possible when as there are certain gaps. He noted that this paper was ready to be published at the end of his last term and will contact Minister Dlamini (who co-chairs the inter-Ministerial with him) on its status. The broad thrust of retirement reform remains in place and will continue.
Government is flexible on the implementation of annuitisation for provident funds and proposes to postpone implementation for two years, from 1 March 2016 to 1 March 2018. With the postponement of the annuitisation requirement, to prevent tax abuse, it is proposed that no tax-free transfers from pension funds to provident funds be allowed for the next two years.
Government will look at a technically appropriate way to allow the tax deduction to provident fund members for two years. All tax related measures, including the harmonised 27.5% tax deductions (up to R350 000 per annum) on contributions to any retirement fund, will be implemented for all retirement funds from 1 March 2016. If by the end of the two years there is no agreement between stakeholders and Government, the tax deduction for provident fund members will fall away.
Government will review the Means Test and ask the Department of Social Development and National Treasury to consider this proposal and take it forward. The next step for Government is to make a formal announcement in the Budget Speech and to then make the necessary changes to the legislation, which will need to be fast-tracked.
This has to be in place to prevent tax abuse. For example, with the postponement on annuitisation for provident funds, no transfers from pension funds to provident funds can be allowed for the next two years to avoid weakening the current pension system.
Courtesy credit: news flash originally featured by www.crs.co.za