Edition: Dec 2014 - Feb 2015
T-day delayed. What remains?
There’s much for trustees to review. Ashlene van der Colff, divisional director (operations) at Liberty Corporate, explains.
Van der Colff . . . through the quagmire
The signing into law of the 2013 Taxation Laws Amendment Act (TLAA) has been widely commented and reported on. Despite some concerns around what the changes actually mean, there are generally positive sentiments that these changes represent positive steps for retirement-funding savings in South Africa.
National Treasury released a media statement on 17 October 2014 with the revised 2014 Taxation Laws Amendment Bill (TLAB), confirming a delay in the implementation date of a significant component of the retirement tax-reform changes that were to be effective from 1 March 2015 (T-day).
The new effective targeted date for implementation is 1 March 2016, but may change depending on the agreement between National Treasury and the National Economic Development & Labour Council (Nedlac). This development has been received with mixed reaction and certainly came as an anti-climax to some in the retirement fund industry.
Liberty noted with concern the deferral of the effective date for these retirement tax-reform changes. We have previously voiced our support of these changes as we view them as largely beneficial to the average South African trying to build an appropriate retirement-funding reserve.
The deferral particularly affects provident fund members, who now remain unable to claim a tax deduction for their contributions toward retirement savings. In addition, the delay hampers the much-needed incentivisation towards a greater retirement-savings culture.
We are of the view that there has been extensive engagement with the industry in the years leading up to the changes. However, the deferral provides a further opportunity that will be best used to communicate and clarify the various aspects of the overall Retirement Fund Reform considerations to all stakeholders.
Trustees of retirement funds can play a vital role in promoting awareness for members of funds to understand the difference between preservation of their savings before retirement and preservation at retirement. The latter would have been affected by the T-day changes. Members should not resign toaccess their retirement savings, as the proposed T-day changes do not affect pre-retirement preservation.
What should Trustees of retirement funds be considering in light of this deferral? What remains relevant and imminent? The following changes remain effective from 1 March 2015, of which only point ii) directly affects retirement funds:
i) Premiums for Income Disability Benefits will no longer be tax deductible, but benefits received will be tax free
Currently, these benefits are included in the member's taxable income, resulting in members receiving the lower benefit, which is net of tax. The following are the main implications of these changes:
ii) Retirement fund accrual date can be elected by member.
There are a number of implications to be considered with implementation of deferral of the retirement benefit beyond normal retirement age (NRA). Should members elect to defer accrual of their retirement benefit beyond the NRA, trustees will have to think about, among other things:
iii) Tax-free savings vehicle
Trustees may want to consider creating increased member awareness of this benefit as a supplement to retirement savings.
Liberty remains committed to retirement-reform initiatives and will continue to communicate any developments as these happen. The key drivers to ensuring that these retirement tax-reform initiatives come to fruition by 2016 are meaningful collaboration among all stakeholders and clear communication to those affected.
For further details on the 1 March 2015 changes, please visit our website