In this bulletin, we share some changes and draft regulatory changes that may be of interest to you.
Provident Fund retirement changes
There are generally two types of occupational retirement funds that employers make available to their employees for retirement saving purposes. These are pension funds or provident funds.
In summary, the differences between these funds are found below.
During the member’s working life, contributions made to the pension fund from their salary are tax deductible i.e., the taxable portion of the salary is reduced by the contributions made to a pension fund (subject to applicable limits) before the applicable tax is computed in line with the tax rates.
When the member retires, up to one-third of the total retirement savings at that point may be taken as a lumpsum upfront, while the balance must be utilised to provide a monthly annuity/pension.
During the member’s working life, contributions made to the provident fund from their salary are not tax deductible i.e., the taxable portion of the salary is not reduced by the contributions made to a provident fund.
When the member retires, the whole of the retirement savings at that point is taken as a lumpsum.
With effect from 1 March 2021 (T Day) and going forward, provident funds are going to work similar to pension funds on retirement savings accumulated from that date. This means that during the working life of a member, contributions to provident funds are going to be tax deductible while at retirement up to one-third of the total retirement savings at that point may be taken as a lumpsum, upfront with the balance used to provide a monthly annuity/pension.
Impact on EPPF Members
As EPPF is a pension fund, these changes do not have an impact on you.
Draft changes to Regulation 28 of the Pension Funds Act
Regulation 28 is part of the law that stipulates guidelines to retirement funds on which types of investments they may invest their assets, as well as the limits up to which those investments may form in total. It provides that retirement funds must invest their assets in a responsible manner taking into account the risks applicable to the investments they make.
Up to now, Regulation 28 has not explicitly and clearly provided limits for infrastructure investments. The draft changes, in the main, seek to clarify what these investments are as well as provide limits up to which retirement funds may invest in them.
Infrastructure investments include areas such as communication and technology, health care, airports, education institutions, economic facilities, mines, oil or gas, ports and harbours, electricity, public roads, and transport etc.
The proposed changes do not prescribe or force retirement funds to invest in infrastructure investments. Retirement funds would have to consider their own investment strategy and needs and decide on each investment taking into account the applicable returns and risks. The aggregate limit up to which these types of investments may make as total of a retirement fund’s assets is 45%.
Impact on the EPPF
The EPPF notes the proposed changes and is looking forward to the final version that will be finalised. It further notes the fact that the proposed changes are not prescriptive but rather provide clarity on how retirement funds may invest in infrastructure investments.
As it currently does, the EPPF will evaluate each investment opportunity taking into account the expected returns and applicable risks before deciding on investing with the interests of members, pensioners and beneficiaries being of paramount importance.
Eskom Pension and Provident Fund