T-day Q&A: All your questions regarding the tax amendments answered!

2016-02-25 08:34

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In order to clear up any confusion about the impact and aim of the new updates to the Tax Amendment Act, especially in relation to retirement savings we’re answering some of your questions.

Which tax law is the Government passing that affects retirement policies?
The Government is updating the various Taxation Laws Amendment Acts which provided for the T day tax changes that are scheduled for 1 March 2016. The T day changes propose simplifying and harmonising retirement funds, meaning that all retirement, pension and provident funds now have the same tax rules and employer and employee contributions are consolidated to reduce the scope for tax structuring.

What are the Tax implications?
Starting from 1 March 2016, tax deduction benefits will be extended to provident fund members as well. Tax-deductible contributions will be capped or limited to 27.5% of the greater of the individual’s remuneration received from their employer or their taxable income, subject to a maximum of R350 000 per annum and applies across all approved retirement funds.

How will the tax and retirement reform benefit workers?
It is hoped that the tax deduction incentive will encourage workers to save (more) through retirement funds, to curb old-age poverty and excessive dependency on relatives.
 
How will the new legislation apply to provident funds?
A delay to the provident fund annutisation law implementation has been proposed for 2 years, from 1 March 2016 to 1 March 2018. If these are brought into effect in 2018, provident fund members who are 55 years and older on 1 March 2018, will not be affected, and those provident fund members younger than 55 will not be asked to annuitise the post 1 March 2016 portion of their contributions + growth thereon if the total of those is R247 500 or less when they reach retirement. If the proposals remain the same as the current T day proposals, provident fund members will never have to annuitise at retirement, their pre 1 March 2018 contributions + growth.

Will members have access to their pension or provident fund upon resignation or losing a job?
Yes. The implementation of the Taxation Laws Amendment Act will not take away the right of provident or pension fund members to withdraw their benefits before or at retirement as a lump sum. However, members of both pension and provident funds are encouraged to keep their savings until retirement - that is preserving their savings.
 
Does the new law mean that provident funds will be abolished?
The Government recognises the hard-won rights to secure provident funds for workers. Provident funds will continue to exist, but will evolve in the long term to have the same tax treatment of contributions and benefits as pension funds.

What happens if your company does not have a compulsory retirement fund?
You can commence your own retirement funding via a retirement annuity. When you contribute to a Retirement Annuity you get a tax reduction in that contributions (within the said limits) are deductible and there is no capital gains tax or any other taxes applied to these funds while they are invested in the retirement fund. A Max Investements Optimal Plan from Old Mutual offers you a transparent retirement annuity that adapts to your needs as your life changes all the way to retirement. The Optimal Plan offers you an  investment booster payable on the 5th anniversary of the plan plus a monthly booster every month thereafter. You can decrease your contributions to the retirement annuity, skip a few contributions or stop paying contributions in an emergency without being charged a reduction fee. You can also increase your contributions as your income increases.

Ask Old Mutual to call you back to find out how you can benefit from an Optimal Plan Retirement Annuity.

* All information shared to date and contained in the material released, are a reflection of the actual information contained in the Taxation Law Amendment Act as at the time. 

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