The South African Institute of Professional Accountants (SAIPA) has expressed concerns that the government has once again agreed to postpone the compulsory annuitisation of provident fund savings on retirement, which are to come into effect on 1 March 2016.
“In our view, there has been plenty of opportunity for engagement on this legislation, and further delay in compulsory annuitisation has a long-term impact,” says Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at SAIPA. “Retirement savings should be preserved for retirement years, and not used to fund short-term needs. The original intent of making contributions to a retirement fund is to save for retirement, full-stop.”
The recent amendments introduced by the Taxation Laws Amendment Act (2015) aims to reform and streamline the retirement funding industry. Proposed reforms include standardising the tax treatment of contributions made by employers and employees to retirement annuity, provident and pension funds. Also, closing the gap abused by high-income individuals to gain tax benefits.
The second major reform involves harmonising fund rules across all three types of fund and how the funds are taxed in order to make it easier for investors to switch between funds without suffering adverse consequences, and to ensure that everyone has access to the same benefits.
The third major reform proposes to bring provident funds in line with pension and retirement annuity funds by stipulating that at least two-thirds of retirement savings be converted into an annuity on retirement to provide a constant income stream after retirement. This is the reform that Cosatu objects to. Let’s not forget that retirement annuity and pension fund savings already has the compulsory annuitisation requirement.
Retief says government should be wary of allowing itself to be forced into allowing funds intended to fund retirement to be used to pay off short-term debts, thus leaving South Africans facing the bleak prospect of an underfunded retirement, or again placing the burden on governments shoulders, funded by taxpayers.
“The fact is that already the vast majority of South Africans do not have enough money to fund their retirement. Forcing them to preserve at least two-thirds of their provident fund savings is a sound policy decision because it protects the long-term interests of working people, and it also reduces the potential burden on the state, which has to assume the responsibility for helping those who face a destitute old age,” says Retief. “It does not make sense to sacrifice the future in order to solve immediate problems. Retirement funding is not a vehicle for general saving and should not be seen as such.”