The new Taxation Laws Amendment Act will balance the tax treatment and annuitisation requirements for all types of retirement funds (for example, pension, provident and retirement annuity funds).
These new rules come into play on the 1st of March 2016. The annual deduction cap is R350k.
The new law aims to make the tax system more progressive by improving vertical equity between the high income and low income taxpayers, as it limits the tax deduction to R350k. This tax deduction is only available to members of a fund who intend to annuitize on retirement. The Act is pushing for more individual savings.
It is important to note that the new rules will only apply to contributions made after the 1st of March 2016.
Provident Fund Members who are 55 or older on 1st of March 2016 are exempt from these provisions as are retirement balances below R247 500. The government intends to ensure that members seek proper financial advice from their pension and provident funds before withdrawing such funds. Provident Fund members were previously able to withdraw their full accumulated benefits as a cash lump sum at retirement. However, effective 1 March 2016 provident fund members must use at least two-thirds of their fund benefit to purchase an annuity upon retirement.
The President has said that he did not act unilaterally when signing this Act: the Law was considered at Nedlac and openly in Parliament and was passed by both the National Assembly and the National Council of Provinces following public hearings.
The Act can be accessed here.
Interesting article on the Polity website.http://www.polity.org.za/article/cosatu-cosatu-calls-on-all-workers-not-to-resign-from-their-jobs-but-to-unite-and-mobilise-2016-01-21.