Earlier this month, there was a retirement reform milestone that has taken place: the implementation of the 2015 Tax Laws Amendment Act, which will come into effect on 1 March 2016. While there are many factors that determine how these changes will affect you, six key takeaways that everyone should be aware of are:
- Changes do not impact resignation or voluntary withdrawal benefits: Members of pension and provident funds will still be able to receive their full cash benefit upon resignation and retrenchment. Members’ entitlement to receive a withdrawal benefit at resignation is therefore not affected.
- If you are younger than 55 years and a member of a provident fund: Your current benefit in a provident fund will not be affected. Even after 1 March 2016, you will still be able to take the full accrued value that was in the provident fund as at 1 March 2016, as well as growth on that amount as a lump sum on retirement, irrespective of whether the member’s benefit remains in the provident fund or is transferred to another retirement fund after 1 March 2016.
- If you are 55 years or older and a member of a provident fund: Even after 1 March 2016, your Provident fund will not be affected by these changes, and you will still be able to receive your full benefit in cash when you retire. If, however, you decide to transfer to another fund, the contributions to the new fund will no longer be protected.
- One universal tax deduction: From 1 March 2016 onward, everyone will receive a tax deduction for the total of all contributions up to 27.5%, regardless of whether the contributions are to a Pension, Provident or Retirement Annuity fund. Provident fund members will therefore also enjoy a tax deduction on their contributions (resulting in you paying less tax)
- The new R 350 000 contribution cap: After 1 March 2016, you will still be allowed to contribute above the R350 000 limit, but you will not be entitled to a tax deduction for such excess contributions in that same year. You will therefore pay tax on the amounts contributed in excess, which may result in your take home pay to be lower than previously.
- The new R247 500 minimum amount: If you retire from a pension, provident or retirement annuity fund after 1 March 2016, and your total value in the fund is less than R247 500, you will be entitled to take the total value in cash.
In addition to noting the insights above, we highly recommend that everyone take a moment to revisit your retirement savings on-the-whole, to ensure that you are sufficiently saving for your future. These changes in legislation give all of us an opportunity to make certain we are adequately financially covered for the future, and to sync with employers to update our contributions accordingly.