In 2015 amendments were made to the Act regarding the tax treatment of provident funds in order to enhance preservation of retirement fund interests during retirement. As a result, provident funds will be treated like pension and retirement annuity funds and will be required to annuitise benefits. This implies that on retirement, members of the provident fund will be permitted to take up to a third of the retirement benefit as lump sum and annuitise at least two thirds. However, this will only be applicable for contributions made to a provident fund after the implementation date. All contributions made before the implementation date, and growth on those contributions, may still be taken as a lump sum on retirement.
The above-mentioned amendments were supposed to come into effect on 1 March 2016. Government came under pressure from the unions regarding this proposal and in February 2016 postponed the annuitisation requirements for provident funds for two years until 1 March 2018. The reasoning behind this postponement was to provide sufficient time for the Minister of Finance to consult with the various interested parties. These included the National Economic Development and Labour Council (NEDLAC), who would be consulted regarding the annuitisation requirements for provident funds after the publication of the comprehensive policy document on social security. The Minister of Finance would also need to report back to Parliament on the outcome of those consultations no later than 31 August 2017.
Several changes have taken place since the postponement of these amendments and the discussions on the comprehensive paper on social security are still underway in NEDLAC. In view of the above it is proposed that the provisions relating to the annuitisation requirements for provident funds be postponed for 1 year from 1 March 2018 to 1 March 2019.
The proposed amendments will come into effect on 1 March 2019 and apply in respect of years of assessment commencing on or after that date.