New tax legislation will 'improve retirement'

Experts say the new bills don’t actually change pensions radically.

FILE: The new law sees a change in the amount someone can withdraw from a provident fund when they retire. Picture: Thomas Holder/EWN.

JOHANNESBURG - While the Congress of South African Trade Unions (Cosatu) says new bills signed into law by President Jacob Zuma amount to the nationalisation of pensions, personal finance experts say they don't actually change pensions radically.

The new law sees a change in the amount someone can withdraw from a provident fund when they retire.

Cosatu's Sizwe Pamla says these new laws are going to have a huge impact on their members.

"It's going to force people to actually take early retirement and then cash in their money while they still can. We feel that this in unacceptable."

Old Mutual corporate consultant Michelle Acton says this is not a big shift.

"Those benefits fully belong to those individuals. They don't belong to anyone else. That structure is not changing. The only thing that has changing is how that benefit will be paid out when we get to retirement."

She adds this will help people to have a better retirement.

LISTEN: What does the new legislation on retirement income entail?

WHAT THIS MEAN FOR YOU

Head of Best Practice at Alexander Forbes, Michael Prinsloo, says the two major changes include a uniform set of tax deductibility criteria that apply across all pension funds arrangements.

Prinsloo says the reforms are designed to simplify what has been an overly complex pension's regime.

"At the moment there are three types of pension funds, namely pension fund, provident fund and a retirement annuity but they have had different tax deductibility regimes. The system, from March 2016, will be a 27,5 percent maximum deductibility across all three funds."

That means your concept of pensionable salary has fallen away and you may base this contribution on your taxable income or gross salary.

Prinsloo further explained that for pension fund members the only difference is the R350,000 cap.

"There was always an annuity requirement and you could at retirement access one third of your capital as a lump sum and two thirds would be used to purchase annuity."