Tax change to provident funds delayed

Treasury has once again backtracked on the implementation of the compulsory annuitisation of two thirds of provident fund payouts on retirement.

The measure‚ which has been fiercely opposed by the trade union movement‚ has once again been postponed for implementation from March 1 2019.

The amendment to the Taxation Laws Amendment Act and the Revenue Laws Amendment Act was initially planned to come into effect in February 2016 but in the face of strong opposition by labour‚ this was postponed to March 1 2018.

Implementation has now been postponed once again.

Labour threatened to go on strike if the measure was adopted‚ arguing that workers needed the full cash payment of their provident fund savings in order to make once in a lifetime purchases. Trade unions also argued that the proposal should await the finalisation of the comprehensive social security reform.

The proposal would require that two thirds of withdrawals from provident funds on retirement be converted into an annuity with one third being taken as cash.

The aim would be to ensure that workers have an income in their old age and do not descend into poverty because they have used all their provident fund savings for once in a lifetime purchases like a home. It would also lessen the burden on the state to pay state old age pensions.

The measure would see provident funds being treated in the same manner as other pension and retirement annuity funds.

Treasury director personal income taxes and saving Chris Axelson told Parliament's standing committee on finance during a briefing on the draft Taxation Laws Amendment Bill and the draft Tax Administration Laws Amendment Bill that the reason for the postponement was to allow for discussions on the comprehensive paper on social security which are taking place currently at the National Economic Development and Labour Council (Nedlac).

He said the measure was postponed in 2016 "to provide sufficient time for the Minister of Finance to consult interested parties including Nedlac regarding the annuitisation requirements for provident funds after the publication of the comprehensive policy document on social security and to report back to Parliament on the outcome of those consultations no later than August 31 2017."

- BusinessLIVE