How the budget affects retirement funds

2018-02-23 14:31 - Yolandi Groenewald
(iStock) ~ iStock

Johannesburg - South Africa’s latest budget flirted with changes to the way South Africa’s retirement funds operate.

Fiona Renton, head of Alexander Forbes Legal Services, said there were new opportunities that this year's budget brought about to encourage South Africans to invest in a retirement fund.

Explaining the tax treatment of contributions to retirement funds situated outside South Africa, she said currently the Income Tax Act exempted retirement benefits from a foreign source for employment provided outside South Africa.

“The exemption, taking into account the double taxation agreements and the Income Tax Act, will be reviewed,” she said.

The proposal is that it will now only allow deductible contributions where benefits are taxable. The budget also proposed to align tax treatment of preservation funds upon emigration.

On formal emigration an individual can withdraw from a retirement annuity fund, she explained.

“Government will consider aligning the tax treatment of different types of fund withdrawal on emigration,” she said.

On whether allowing transfers to pension and provident preservation funds to be amended after retirement, she said the 2017 amendments now allowed transfer of pension or provident fund amounts to a retirement annuity fund after retirement.

“Pension preservation and provident preservation funds were excluded, because of the one withdrawal issue,” she said.

Renton said the government had listened to industry voices that proposed to change the law to allow transfers to preservation funds.

This year’s budget had also attempted to rectify tax anomalies on the transfer of retirement funds.

“The transfer between or in funds at the same employer has inadvertently led to a tax liability for members,” Renton said.

She stated there should be no additional tax consequence for members.

“Legislative changes will be retrospectively introduced to correct these unintended tax liabilities.”

Also retirement funds receiving tax-exempt dividends no longer need to submit a return. This will increase foreign investment to 40%, she believed.

Africa investment allowance will increase from 5% to 10%.

She also noted a draft Financial Services Board circular that proposed the removal of audit exemption for funds.

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