Over the last few years, government has been reviewing and changing the laws that control the retirement fund industry. These retirement reform initiatives aim to ensure that investors save enough for retirement and that their savings are protected.
In March 2015, the Taxation Laws Amendment Act introduced changes to the Income Tax Act which were required to align the benefits and tax treatment of all types of retirement funds. The annuitisation of provident funds has been postponed over the years but for the first time, from 1 March 2021, will be aligned with those of pension and retirement annuity funds.
In general, as from 1 March 2021, members of provident funds will only be allowed to take one-third of their benefit at retirement as a cash lump sum. The balance of the benefit must be used to purchase a post-retirement income product to provide an income to the member.
If they remain in the fund up to retirement, they will not be affected by the changes.*
The rule to annuitise only applies to provident fund contributions made from 1 March 2021 plus growth thereon (referred to as the “non-vested” portion).
Contributions made before 1 March 2021 plus growth thereon (referred to as the “vested” portion) will not be affected by the changes.*
*The portion that is not affected by the legislative changes (vested portion), may be taken in full in cash at retirement. If the non-vested portion is less than R247 500, the full amount may also be taken. Lump sums taken at retirement are subject to tax.
**Regulation 28 of the Pension Funds Act states that the maximum asset class exposure for investments in retirement funds should be 75% to equities, 25% to property, and 30% to foreign assets (of which not more than 25% may be invested in foreign assets outside Africa).
Withdrawals from a fund prior to retirement, whether in terms of the Pension Funds Act or the Income Tax Act, will be applied proportionally from the vested and non-vested portions or plans, in cases where a fund member has both linked to his/her membership.
Should a member want to switch between funds or make use of any other investment option, completed switch forms can be emailed to firstname.lastname@example.org or faxed to +27 21 947 9210.
Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.