nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Proposed pension changes pose pension leakages

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Recent proposed changes to pension laws have received backlash from workers and the media. The proposed change means only one third of pension savings can be taken out as a lump sum while the remainder must be annuitised.

The Finance Ministry’s intention is so that workers don’t remove all of their savings and suffer deficits later in life. In addition, the Ministry believes members who save for retirement with the sole intention of taking all savings as a lump sum should save in other funds where the tax benefits aren’t as generous.

“If you’re going to save for retirement, you can’t enjoy the tax benefit fully and then and [sic] expect to take the money out all in one time. That is the deal government is doing with the members in society.”

~ Deputy Director General for the Tax and Financial Sector, Ismail Momoniat

Current regulation means members can withdraw up to half a million Rand from provident funds as a lump sum, tax free. In addition, the new compulsory annuitisation changes for provident funds has been postponed for two years due to backlash from the public and Cosatu. However, provident fund members will for the next two years still benefit from the 27.5% tax deduction on their contributions that was meant to go hand-in-hand with the compulsory annuitisation changes. This poses ‘leakage’ threats from pension and retirement annuities to provident funds.

Read more here:

Treasury highlights ‘leakages’ if pension law not changed

‘COSATU’S CLAIM OF GOVT NATIONALISING PENSION FUNDS IS NONSENSE’

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2 thoughts on “Proposed pension changes pose pension leakages

  1. Ah, good example of something that should have been a government give and take, becoming a give and give… The R500,000 – is that on retirement or withdrawal, do you think? And what difference does this make?

    • This figure has to be on retirement. Otherwise I would love to take up the highest risk “retirement/provident fund” as a young working professional and not worry about tax… (So I should clarify I mean’t withdrawal from the fund as a lump-sum on retirement)

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