How will ‘Retirement Fund Reform’ impact your pension fund?

How will ‘Retirement Fund Reform’ impact your pension fund?

Legislation, Payroll / eTorQue

Over the past few months we have all heard snippets about the retirement reforms, and it is a complex issue.

Basically treasury had the following main concerns and these were the objectives of reform – to:

  • Promote household savings
  • Reform the Retirement Industry
  • Enhance the tax treatment of Retirement Funds
  • Address the charges of Retirement Funds

You will have noticed that in the 2013 budget, the minister released a number of Retirement Reform proposals around the tax treatment of Retirement Funds, which has already been realised with more being introduced in March 2014. We asked Kathryn Ann Maroun, a Corporate Benefits Specialist with Quattro Fund Managers to comment on this question – What are the timelines and when can we expect new regulation?

She had the following comments:

“Retirement Funds were, this week, urged to allay fears among members about retirement reform, including the changes to the law that come into effect on 1 March 2015.

From 1.3.2015, Provident Funds will be harmonised with Pension Funds, with regards to annuitisation. This means that upon retirement, only 1/3 of all contributions from 1.3.2015, and not the entire amount, as is currently the case, will be available as a lump sum on retirement. The other 2/3 of the member’s contributions from 1.3.2015 will have to be used to buy an annuity or monthly pension when the member retires.

Provident Fund Members need to be reassured that the amount that they have saved prior to 1.3.2015, plus growth on this amount will still, upon retirement, be paid out as a lump sum, and will not be affected by the new legislation. It is imperative that Provident Fund members understand that it is only future contributions from 1.3.2015 that will be affected, and will be paid out on the same basis as a Pension Fund, upon retirement, and not any past contributions.

However there are exceptions to this new rule: if the value of your contributions plus growth is less than R150 000 upon retirement, the entire amount will be paid as a lump sum. Provident Fund members aged 55 or older on 1.3.2015 will not have to buy an annuity or monthly pension with their savings if they stay in their Provident Fund. However, if they move to a new fund, the contributions to the new fund and the growth on these contributions will have to be used to buy an annuity, or monthly pension, unless it is less than R150 000, upon retirement.

The issue around enforced preservation of a member’s retirement savings, upon resignation from their job, is still being discussed by government, labour and business, but to date there are no formal proposals, and thus enforced preservation of your retirement savings during your working life will not be implemented next year.”

There are some changes in relation to Government’s key proposals or recommendations that trustees should be aware of.

If you require assistance with these changes, please email [email protected] who will put you in contact with Kathryn-Ann of Quattro Fund Managers.