Even though these amendments will only become effective from 1 March 2015, we feel that it is important to be aware of the proposed changes as they could affect the type of retirement vehicle you choose.
As SARS are attempting to align provident funds with pension and retirement annuity funds, you will no longer be able to withdraw the full lump sum of provident funds upon retirement or resignation. In future, you will only be able to take one-third upon retirement and the two-thirds will be annuitised. There will, however, be concessions for members over the age of 55 as well as for those members who have contributed to a provident fund prior to the amendments. Each provident fund will have to administer 2 accounts for each member.
The contributions made to a provident fund will now be tax-deductible, as they are for pension and retirement annuity funds. The new deduction for contributions to a retirement fund will be limited to the lesser of R350 000 per annum or 27.5% of remuneration or taxable income before this deduction. Any excess will be carried forward to the next tax year.
Another new change is that employer contributions to any retirement fund will now be taxed as a fringe benefit. This should not result in any significant change in tax liability to members as most of their contributions will be tax-deductible.