Jeff Radebe tasked to mediate dispute over new pension laws

Workers are demanding the scrapping of the unilaterally imposed tax reforms by government.

Picture: Thomas Holder/EWN

JOHANNESBURG - The presidency has announced Minister Jeff Radebe has been asked to work with the National Treasury and the Congress of South African Trade Unions (Cosatu), to resolve their dispute over changes to the way pensions are paid out.

Last month, Zuma signed into a law an Act that will see people only being able to take out a third of their provident fund as a lump payment when they retire.

The law is due to take effect in three weeks' time but it's been strongly opposed by Cosatu.

Spokesperson for the union, Sizwe Pamla, says, "We are happy that the presidency has deployed the minister to try and assist the parties to find a solution to this problem. We will engage, we will sit down and listen."


If you are a member of a pension fund, new laws mean you will have to buy an annuity with a portion of your retirement money the day you stop work.

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.

Trade union federation Cosatu is furious and sees the reforms as a betrayal.

Last month, the trade union federation's Pamla said Zuma's decision was an attack on workers.

"Cosatu strongly condemns the signing of this legislation into law by President Jacob Zuma. We feel like this was an act of provocation by government, especially considering the fact that it is a betrayal of the workers."

But 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."

Asked why Cosatu is angry, Prinsloo said the issue relates to provident funds.

"With a provident fund, before the law, you could access 100 percent of your capital in cash or you could access annuity and had full flexibility. In the future any provident fund member will now be able to deduct their contribution so they may increase their take home slightly and at retirement they will now have to purchase annuity with up to two thirds of the contributions they have made post 2016."

What that means is if you resign from your employment at the moment you will still get all the money from your retirement fund in cash.

Rules around retirement funds have changed. The majority of the changes were in the 2013 and 2014 acts but were delayed with the implementation.

The issue is people are not retiring with sufficient income even if they have spent years contributing and that's because at the times they should be preserving funds they aren't.