After a year’s delay, the 2015 Tax Amendment Bill has finally been signed into law and will impact your retirement savings – positively. The new legislation, which will change the tax treatment of retirement funds, will come into effect on 1 March 2016, known as “T-Day”.

James Couthino: Senior Tax Manager, Liberty, explains:

Very few South Africans have enough savings to retire comfortably. The government has introduced a number of tax reforms to make it more attractive to invest in retirement funds. The majority of members in retirement funds will enjoy larger tax deductions on their contributions to a pension fund, provident fund or retirement annuity. The government has also levelled the playing fields between the different types of retirement funds, so provident fund members will have to take two-thirds of their benefits in the form of a pension at retirement, as opposed to a cash lump sum. The total of your provident fund benefits up to 1 March 2016 plus growth, however, will be regarded as “vested” and may still be taken as a cash lump sum at retirement, should you choose. These retirement tax reforms are a positive step in protecting retirement savings so members should rest assured that their benefits remain secure.

The four major tax changes and what you need to know about this legislation:

• There will be changes to the tax deductions that employers and members/employees can claim when contributing towards a retirement fund.
• Provident fund retirement benefits will be brought in line with retirement benefits from pension funds and retirement annuity funds.
• The ability to transfer retirement savings tax-free between different types of retirement funds will be improved.
• The minimum value of retirement benefits that can be accessed as a lump sum will be increased.

The major factors that will not change on T-Day:

• Continued membership in a retirement fund (provided you’re already a member).
• A member’s ability to take their retirement savings as a cash lump sum on resignation, dismissal, or retrenchment will not change. In other words, there is no mandatory preservation.

However, it’s not advisable to take a lump sum payout, but rather to preserve your retirement savings in a preservation fund.

As a member of a pension/provident/retirement annuity fund, you’ll be able to claim a deduction of up to 27,5% of your income. This means that if you’re contributing to more than one fund, the limit will apply to the total of all the contributions you make. For example, if you currently contribute 7,5% towards your pension fund, you can contribute a further 20% to a retirement annuity. This new tax limit is, however, subject to an annual maximum limit of R350 000.

Recognising the need for consumers to have security in an uncertain economy, Liberty recently designed Agile, a retirement annuity and preservation fund that will guarantee investors’ income after retirement.

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