By Jean du Toit
March 1, 2021 marked a turning point for pension funds in South Africa. Most focus on the annuity rules outstanding since March 1, 2015, otherwise known as “T-day”. While these reforms are important, pension fund members need to understand them in the big picture.
In 2013, then Finance Minister Pravin Gordhan tabled proposals for the governance, preservation, annuity and harmonization of pension funds. Initially, T-day was scheduled for March 1, 2015, but was postponed following ongoing “consultations” with stakeholders.
From March 1, 2021, pension fund members will be subject to the annuity rules, which means that they will only be able to withdraw a third of the value of their pension fund in the form of lump sum, the balance being taken as an annuity. The annuity rules do not apply when the retirement interest does not exceed 247,500 rand, nor to amounts contributed after March 1, 2021.
Withdrawal upon emigration
Currently, members of pension funds can immediately access their funds in a provident or retirement fund when they emigrate from South Africa, if such emigration is recognized by the SARB. According to the latest tax law amendment bill, as of March 1, 2021, withdrawal will only be allowed if the member can prove that he has been a tax non-resident for an uninterrupted period of three years.
This means an effective three-year blocking of the pension funds from the effective date. It is important to note that for those planning to leave in the near future, in terms of the National Treasury’s response to public comments on the amendment, members will be allowed to withdraw their funds under the current exemption if they file a complete application before March 1, 2021.
The continuous whispers of “prescribed assets” where the government actually wants to release retirement funds to invest in government projects have made South Africans very anxious. The main obstacle of the government in implementing this policy is Regulation 28 of Law No. 24 of 1956 on pension funds. By-law 28 should be amended to apply this policy, as it obliges a fund to act in the best interests of its members.
The ANC’s position on this has not been consistent, but the most recent can be taken from the medium-term fiscal policy statement where the Minister of Finance said that “the government has initiated a review process. of Regulation 28 to facilitate increased investment in infrastructure – if their board decides to do so. He further noted that a draft gazette will be released in due course for public comment, so it looks like this policy will be implemented in one form or another.
Rules that remain unchanged (for now)
It is important to understand that the annuity rules are largely aimed at aligning the retirement funds with the annuity; but this should not be confused with the idea of mandatory retention.
For example, at present you are allowed to withdraw all of your withdrawal benefits from your pension fund in cash upon termination of your employment. Some may understand that the new rules mean that this would no longer be possible, but that is not the case – this rule remains intact – for the time being.
More changes to come
Following his comments on Regulation 28, the Minister of Finance also said that “the government will introduce legislation next year allowing limited withdrawals before retirement in certain circumstances related to mandatory retention requirements. The National Treasury has mentioned that this policy will allow access to pension funds in times of crisis, but mandatory preservation, which was initially on the agenda, appears to be part of the equation.
While the changes are being implemented gradually, fund members should stay tuned, as government pension fund policy appears to be a moving target.
Jean du Toit is a lawyer and responsible for tax techniques at Tax Consulting South Africa
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