|
Audio Version
|
National Treasury has been aligning retirement rules since 2013 to encourage saving for retirement and to ensure retirement products meet the needs of South African savers, that are poor savers. Fewer than 10% of South Africans can support themselves financially in retirement.
Firstly, tax deductible contributions to retirement funds were increased in March 2016 to 27.5% of one’s taxable income / remuneration (with a maximum tax deduction of R350 000), from 15% previously. Secondly, in anticipation of point 3, the 100% retirement withdrawal threshold was increased to R247 500 from R75 000 in March 2016.
Thirdly, aligning the requirement to purchase an annuity on retirement (effective 1 March 2021):
Currently, provident and provident preservation fund members can take up to 100% of their benefits in cash at retirement. However, pension, pension preservation and retirement annuity fund members are required to use at least two-thirds of their benefit to purchase an annuity, unless their benefits in a retirement fund are R247 500 or less.
From 1 March 2021, contributions to and benefits from provident funds will have to be transferred to an annuity at retirement, except if provident fund members are 55 or older.
Up until March 2021, all benefits in provident funds, plus any future growth on these benefits, will not be impacted by the changes. These benefits will be given “vested rights”, meaning that members will still be able to take up to 100% of these “vested benefits” in cash at retirement.
In addition, if existing provident fund members are 55 or older on 1 March 2021 and remain members of the same provident fund, they will also receive vested rights on their benefits from new contributions made to these funds from 1 March 2021 onwards.
For existing members younger than 55 on 1 March 2021, the changes will therefore only impact benefits from new contributions made from 1 March 2021 onwards. For existing members 55 or older on 1 March 2021, the changes will only impact new contributions made to a new fund joined after 1 March 2021.
If you would like any assistance with your retirement savings or investments, please contact us at info@investonline.co.za