SADTU3
SADTU Update, February 2016
Speaker's Notes and Booklet for the
2016 Education Workers' Forums
Full Contents (present section in bold):
Introduction
Pseudo Movements
Defending Collective Bargaining
The Privatisation of Education
Migration of TVET Lecturers in terms of the Public Service Act
Government Employees' Medical Scheme (GEMS)
Government Employee Housing Scheme (GEHS)
2016 Retirement and Tax Reforms
Record of NEC Decisions on MTT recommendations
Conclusion
2016 Retirement and Tax Reforms
Purpose
. The Taxation Laws Amendment Act of 2015 is now law with effect from 1
March 2016 and includes some of the Government's Retirement Reform proposals
which are designed to harmonise the tax treatment and annuitisation
requirements for the three types of Retirement Funds.
THE THREE (3) TYPES OF RETIREMENT FUNDS
In South Africa there are currently the following three types of Retirement
Funds:
1. Pension Funds (employer or bargaining council formed)
2. Provident Funds (employer or bargaining council formed)
3. Retirement-Annuity Funds (individually funded)
Rules affected by the new Retirement Reforms
Current Legislation up to and including 29 February 2016
New legislation applicable from 1 March 2016
Pension Funds
Provident Funds
Retirements Annuities
Employee Tax Treatment of Contributions to Retirement Funds
Limited to the greater of R1,750 or 7,5% of pension funding income.
Contributions are paid with before tax money.
No tax deduction applies to employee contributions.
Employee contributions are paid with after tax money.
Limited to 15% of non-pensionable income or R3,500, less deductable pension
fund contributions or R1,750.
Contributions are paid with before tax money
Employee tax deduction contributions will increase to 27,5% of taxable
income for all three Retirement Funds to a maximum annual limit of R350,000
per annum.
Current Provident Fund Members only:
Monthly take-home pay will increase as your Provident Fund contributions
will be paid with before tax money with effect from March 2016
Employee Arrear Contributions to Retirement Funds
Limited to R1,800 per annum, any excess over this amount may be carried
forward to the following year of assessment
Any excess may be carried forward to the following year of assessment.
Any excess may be carried forward to the next or future years' of
assessment.
Rules affected by the new Retirement Reforms
Current Legislation up to and including 29 February 2016
New legislation applicable from 1 March 2016
Pension Funds
Provident Funds
Retirements Annuities
Employee income base "definition" against which retirement fund
contributions are tax free
Pension or retirement Fund Income only
Not applicable
For Pension Fund Members, only applicable to non-pensionable or retirement
funding income.
For members who are not members of a pension fund, currently applicable to
all taxable income.
The higher of "gross remuneration or taxable income" and includes income
from other employment, investments, property rentals, etc.
Employer Contributions to Retirement Funds
Limited to 20% per annum to all benefit funds, i.e. Retirement, Group Life
and Disability and Medical Aid, etc. Does however excludes Retirement
Annuities
Currently, there is no limit to the amount that an employer can contribute
on behalf of the employee
Employer contributions will no longer be allowed and in all instances will
be treated as an employee contribution
Employee withdrawal from the fund on termination of employment (for whatever
reason) and any time thereafter but before age 55 yrs
The full fund credit can be withdrawn
The full fund credit can be withdrawn
No amount can be withdrawn until the employee is 55 yrs of age.
No change
Rules affected by the new Retirement Reforms
Current Legislation up to and including 29 February 2016
New legislation applicable from 1 March 2016
Pension Funds
Provident Funds
Retirements Annuities
Employee withdrawal from the Fund on Retirement
Only one third of the Fund value can be withdrawn as a cash lump sum
The remaining two thirds has to be annuitised and is used to purchase a
compulsory annuity or monthly income for the employee
The full fund value can be withdrawn as a cash lump sum
Only one third of the Fund value can be withdrawn as a cash lump sum
The remaining two thirds has to be annuitised an is used to purchase a
compulsory annuity or monthly income for the employee
Only one third of the Fund value can be withdrawn as a cash lump sum
The remaining two thirds has to be annuitised and is used to purchase a
compulsory annuity or monthly income for the employee
Exemptions related to employee lump sum withdrawals from Retirement Funds on
Retirement
Fund balances of R75,000 or below can be withdrawn as a cash lump sum and
are not subject to annuitisation.
None, the full value can be withdrawn as a cash lump sum.
Fund balances of R75,000 or below can be withdrawn as a cash lump sum and
are not subject to annuitisation.
All fund values of R247,500 or below can still be withdrawn as a cash lump
sum on retirement.
Applicable to current Provident Fund members only:
Members who are 55yrs or older as at 1 March 2016 are exempt from compulsory
annuitisation and can withdraw their full Fund value as cash lump sum on
retirement; and
The full Fund value that has accrued up to and including 29 Feb 2016 can
still be withdrawn as a cash lump sum on retirement
TAX TREATMENT OF CASH LUMP SUMS PAID BY RETIREMENT FUNDS ON RETIREMENT OR ON
SEVERANCE
Taxable Income from lump sum benefits
Rates of Tax
Not exceeding R500,000
0% of taxable income
Exceeding R500,000 but not exceeding R700,000
18% of amount by which taxable income exceeds R500,000
Exceeding R700,000 but not exceeding R1 050,000
R36,000 plus 27% of amount by which taxable income exceeds R700,000
Exceeding R1 050,000
R130 ,500 plus 27% of amount by which taxable income exceeds R1 050,000
It is important to note that ALL lump sums received from any received from
any retirement fund, whether as a result of retirement or not (and from an
employer in respect of a severance benefit) are taxed on a cumulative basis.
The significant impact of this is that, when a member eventually retires,
the total value of all the lump sum benefits received by an employee, after
1 October 2007 will be taken into account when calculating the tax payable
on the employee's current retirement fund lump sum or severance benefit.
TAX TREATMENT OF CASH LUMP SUM PAID BY RETIREMENT FUNDS ON TERMINATION OF
EMPLOYMENT AND PRIOR TO 55 YEARS OF AGE
It is also important to note that ALL lump sum received from a Retirement
Fund on termination of employment and prior to 55 years of age will be taxed
as additional income in the hands of the employee and will be subjected to
the current or prevailing tax tables for the relevant year when the amount
is withdrawn. The generous tax exemptions in the table above will therefore
not apply.
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