The government has proposed changes to some of the regulations that govern retirement practices in this country in a bid to:
Encourage people to save more appropriately for retirement in order to be able to retire comfortably as far as would be possible.
Ensure that employers provide retirement plans for employees as part of the employees’ employment contracts.
Ensure that employees are treated fairly and that they receive good value for money in respect of their retirement savings.
Protect the interests of employees by improving the governance of retirement funds, including trustee knowledge and ethics.
Retirement reforms are long term changes that were initially communicated by the Minister of Finance during the 2012 budget speech.
The new regulations as far as some changes were concerned, for instance changes to the tax dispensation for contributions, were due to come into effect on 1 March 2015, but that deadline has been postponed to either 2016 or 2017. Some other changes would however, still go ahead on 1 March 2015, for instance some measures to allow members to postpone taking their retirement benefits.
The Proposed retirement reforms would bring into effect three main changes:
Taxation on contributions to the different types of funds (Provident Fund, Pension Fund and Retirement Annuity) would be treated the same. This would not affect EPPF members.
Options at retirement would be the same regardless of the type of retirement fund, for instance compulsory monthly pension benefits instead of lump sum benefits only. The proposed retirement reforms will allow all retirees belonging to the different types of funds (Pension Fund, Provident Fund and Retirement Annuity) to only take out a maximum of a third of their retirement benefit as a lump sum payment at retirement and use the rest of the benefit to buy a compulsory lifelong pension. Again, this will not affect EPPF members because as a defined benefit fund, the EPPF already complies insofar as members are awarded a compulsory monthly pension plan in addition to any lump sum that is taken at retirement. The impact will be felt mostly by members of provident fund schemes.
Fringe benefit tax would be payable on disability cover premiums and the disability income benefit would no longer be taxed in the event of a disability. This would not affect EPPF members.
Starting from the date of implementation, all contributions towards an employer sponsored retirement fund would, for tax purposes, be regarded as fringe benefits in the hands of the employees. Members of a pension fund would then be able to contribute a maximum of 27,5% of pensionable earnings towards retirement funds on a tax-exempt basis. Any amount above this 27,5% would still be allowed, but would then attract tax.
There would also be a limit or “cap” on the maximum annual amount that could be paid on a tax-exempt basis and this would affect only those employees with a very high annual salary. In practice then, the average EPPF members would not be affected and in fact would be able to raise their monthly retirement contributions to a maximum of 27.5% of their salary or taxable income and gain the tax benefit, provided the annual contributions do not exceed the limit or cap that would be introduced.
This could be done at the member’s discretion and once implemented, any changes to contribution levels should be discussed with HR in order to determine the impact on the employee’s income. But before rushing off to the local HR office, remember that this proposal will not be implemented before at least 2016, maybe even later.
Yes, all retirement savings accumulated to date as well as future retirement savings are secure with the EPPF and continue to be governed by the rules of the EPPF. The proposed retirement reforms do not seek to channel the EPPF assets anywhere else and the Fund will continue with its investments as it has all the years past.
It is still important for all members to conduct their own research and understand as much as possible about the proposed retirement reforms.
General and historical information about retirement reforms can be found on:
For information about pension taxation visit: www.sars.gov.za.