JOHANNESBURG – President Jacob Zuma has moved to calm the waters after the Congress of South African Trade Unions (Cosatu) demanded that the new regulations that will compel provident fund members to annuitise be scrapped.
Zuma signed the Tax Administration Laws Amendment Act and the Taxation Laws Amendment Act into law earlier this month. The regulations, which will harmonise the taxation of contributions to pension funds, retirement annuities and provident funds, will take effect on March 1.
This means that provident fund members will only be able to take one third of their pension benefit as a cash lump sum at retirement and that the remaining two thirds will have to be annuitised. However, this will only apply to contributions made after March 1 and for those below 55 years of age. Members will only be required to annuitise once their retirement savings exceed an amount of R247 500. The previously proposed threshold was R150 000.
Provident fund members could previously take their full pension benefit as a cash lump sum at retirement. Pension and retirement annuity funds are already required to annuitise and won’t be affected by this particular change.
The regulations were initially scheduled for implementation in March last year but were postponed amid concerns that members would not have access to their pension benefits prior to retirement once the new regulations were introduced. This fuelled premature resignations to access retirement funds.
Trade unions also wanted more clarity on social security.
In a statement issued on Thursday, the Presidency said Zuma “did not act unilaterally when signing the Tax Administration Amendment Act”.
“The law was considered at Nedlac [The National Economic Development and Labour Council]. It was also discussed openly in Parliament. It was passed by both the National Assembly and the National Council of Provinces following public hearings.”
The president’s statement comes after national spokesperson for Cosatu, Sizwe Pamla, said by signing the Act the president has poisoned the relations between the ANC-led government and the workers.
“He further weakened the alliance and has given considerable comfort to our enemies. This will do nothing to disprove the assertions and suppositions that the movement panders to the left during vote harvesting periods and delivers to the right afterwards.
“This will complicate the campaigning for the upcoming local government elections because workers will also find it hard to be persuaded to vote against their interests.
“It is unacceptable that when we ask to be given a comprehensive social security and retirement reform discussion paper, which government has failed to deliver for more than ten years, we get given the Taxation Laws Amendment Act; and when we take this process to Nedlac, where government is presented by National Treasury, they abandon the engagements to pursue their planned retirement reforms unilaterally,” Pamla said in statement.
Workers will fight any attempts to impose the compulsory preservation of their hard-earned deferred wages, he said.
Pamla said the implementation of the legislation would have dire and lasting consequences on the relationship between government and the workers.
The issue would be at the top of the list of priorities to be discussed by the upcoming Central Executive Committee (CEC) meeting of Cosatu next month.
“The CEC will guide the federation on the rolling out of a massive campaign against this nationalisation of worker’s pensions,” added Pamla.
The Presidency said provident fund members would, similar to members of pension and retirement annuity funds, now also be able to claim a tax deduction on their contributions. It is estimated that around half of the more than 2.5 million provident fund members will see an increase in their take-home pay as a result.
“The reforms do not take away the right of provident fund members to their benefits before or at retirement. Instead, the reforms enable a slower use of such benefits in retirement, by requiring annuitising from a certain amount.
“The data indicates that 83.5% of provident fund members fall in the R160 000 and below income bracket, and that the majority of them retire with an average retirement benefit of R300 000 (note that this average includes higher income members). These data, coupled with [the] protection of vested rights and a higher de minimis amount of R247 500 (i.e. the amount below which you do not require annuitising) leads to the second point that most, if not all, low income earners approaching retirement in at least the next two to five years (and longer), will not be required to annuitise,” the Presidency said.