Implementation date of retirement tax reform
What trustees of retirement funds must consider
Summary of changes from 1 March 2016
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There will be changes to the deductible limits of both Employer as well as Employee/Member contributions to
retirement funds.
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The retirement benefits paid from provident, pension and retirement annuity funds will all be treated in the same
way
•
There are changes to the tax rules around the transfer of retirement savings between different types of
retirement funds
•
There is an increase in the maximum retirement benefit value (R247 500) where you are not forced to purchase
an annuity (commutation)
General
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The contribution limits in retirement fund rules will need to be evaluated in line with existing salary structures
and the new deductible limits.
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Allowable contributions in the rules may need to be revised to accommodate the new deductible limits.
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The concept of gross retirement funding employment income and gross non-retirement funding employment
income will no longer be relevant for deductions. The new deductible limits are focused on either ‘remuneration’
or ‘taxable income’.
•
General member communications, information material and member benefit statements will need to be
reviewed.
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Although provident fund members will be required to annuitise their benefits at retirement, only benefits which
accumulate after 1 March 2016 will be subject to annuitisation. Provident fund benefits at 1 March 2016 plus
any subsequent growth will be regarded as ‘vested benefits’ and will be capable of being taken as cash lump
sums at retirement. As pension funds, preservation funds and retirement annuity funds will be able to accept
transfers of these vested benefits, all retirement funds will be required to maintain separate accounts of vested
and non-vested benefits.
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Consideration may need to be given to separate accounts for members older than 55 at 1 March 2016.
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Section 14 transfers will require enhancement in order to identify and record the split of vested and non-vested
benefits.
•
Special consideration must be given to defined benefit and hybrid funds, which have additional obligations in
terms of the calculation of fringe benefit on the contributions.
•
Consideration will need to be given to the possible consolidation of pension and provident funds or
consolidation of pension preservation and provident preservation funds where economies of scale and ease of
administration may be necessitated.
Impact on retirement fund rules
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Revising existing rules, in order to be compliant with legislation.
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Submitting rules to the Financial Services Board (FSB), to obtain registration and approval.
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Possible rules that may require revision:
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The definition of contributions
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The definition “pensionable salary” or “fund salary”
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The definition of “insured salary”
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References to “retirement funding income”
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Restrictions on transfers to and from retirement funds
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The retirement benefit provisions, including to cater for provident fund members who are 55 years or
older on 1 March 2016
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Commutation provisions
Impact on defined benefit funds
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As with defined contribution funds, employer contributions to defined benefit funds will also be treated as fringe
benefits in the hands of employees.
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The value of the taxable benefit will be determined through the application of a special formula provided in the
Income Tax Act, the components of which will require information from the fund valuator. The formula
approximates the increase in value of the annuity and lump sum benefit of the member for one additional year
of service, based on the retirement benefit that the member will be entitled to.
•
The formula determining the value of the fringe benefit is found in paragraph 12D of the Seventh Schedule to
the Income Tax Act, as read with specific regulations. Currently only draft regulations in terms of paragraph
12D(5)(a) of the Seventh Schedule to the Income Tax Act, have been released which give effect to the
determination of the fund member category as well as information to be contained in contribution certificates.
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Draft regulations have also been released outlining the processes required to ensure that a ‘contribution
certificate’ for each fund member category and additional relevant information is provided on a timely basis to
employers. Contribution certificates will have to be verified by the Fund, supported by the Valuator.
Disclaimer
The information contained in this document does not constitute advice by Liberty. Any legal, technical or product
information contained in this document is subject to change from time to time. This document is a summary of
features of the product. If there are any discrepancies between this document and the contractual terms or, where
applicable, any fund rules, the latter will prevail. Any recommendations made must take into consideration your
special needs and unique circumstances. Liberty Group Ltd is an Authorised Financial Services Provider in terms
of the FAIS Act (no. 2409). © Liberty Group Ltd. All rights reserved