Zuma moves to calm waters over provident funds

taxation1Author: Ing Lamprecht (Moneyweb).

President Jacob Zuma has moved to calm the waters after the Congress of South African Trade Unions (Cosatu) demanded that the new regulations that will compel provident fund members to annuitise be scrapped.

Zuma signed the Tax Administration Laws Amendment Act and the Taxation Laws Amendment Act into law earlier this month. The regulations, which will harmonise the taxation of contributions to pension funds, retirement annuities and provident funds, will take effect on March 1.

This means that provident fund members will only be able to take one third of their pension benefit as a cash lump sum at retirement and that the remaining two thirds will have to be annuitised. However, this will only apply to contributions made after March 1 and for those below 55 years of age. Members will only be required to annuitise once their retirement savings exceed an amount of R247 500. The previously proposed threshold was R150 000.

Provident fund members could previously take their full pension benefit as a cash lump sum at retirement. Pension and retirement annuity funds are already required to annuitise and wont be affected by this particular change.

The regulations wereinitially scheduled for implementationin March last year but were postponed amid concerns that members would not have access to their pension benefits prior to retirement once the new regulations were introduced. This fuelled premature resignations to access retirement funds.

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This article first appeared on moneyweb.co.za.