Retirement fund members are understandably confused as to what changes have actually been brought about with regards to retirement reform. Here we provide a simple breakdown of what you need to know.

Two weeks before the amendments to the Tax Amendment Act came into effect on 1 March 2016, the National Treasury announced a delay to the annuitisation of provident funds until March 2018. The National Treasury has also delayed the ability to transfer tax-free from a pension fund to a provident fund as the rules of these funds are currently not aligned.

All other changes will, however, continue:

Increase in tax-free contributions
Individuals can now deduct up to 27,5% of total remuneration in respect of contributions to pension, provident and retirement annuity funds, subject to an annual cap of R350 000.

It is important to note that this deduction applies to all income, so if you receive additional income from investments or a rental property for example, you could contribute 27,5% to a retirement fund tax-free (subject to the R350 000 cap).

This is one way for individuals to reduce their taxable income, especially those who fall into the top two income brackets (earning in excess of R550 000 per annum), who will experience an effective tax increase as the Finance Minister did not adjust these tax tables to account for inflation.

It is unlikely that company retirement funds will increase to the maximum 27,5% contribution rate, so make sure you speak to your financial adviser about using a retirement annuity to maximise your tax-break.

Increase in minimum threshold for annuitisation
Members of pension funds or retirement funds who retire with R247 500 or less will be able to take their pension as a lump sum and will not be required to purchase an annuity. This minimum threshold has been increased from R75 000.

The future of provident funds
It is important to note that the National Treasury has stated that if no agreement is reached with labour on the annuitisation of provident funds by March 2018, it will have to review the tax benefit provided to provident fund members in order to achieve fairness between all retirement funds. Ultimately, it is unfair to allow members of one retirement fund regime to have more rights than another and to still receive the same tax benefit in terms of tax-free contributions.

What will happen to your Own your life Rewards

If you are a member of the Own your life Rewards programme you should by now have received notification that we are winding down the programme which will be discontinued in a year’s time on 31 March 2017.

For more information on this, please contact your financial adviser or visit www.ownyourliferewards.co.za.

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