Confusion over pension fund contributions
18 July 2014
Posted by: Author: Evan Pinkworth
Author: Evan Pinkworth (BDLive)
Most companies are in the dark on how to amend payrolls to accommodate the retirement fund and tax reforms coming in March next year, according to experts at a "Do or Die" pensions conference on Friday.
The risk is that the new system may reduce take-home pay, and add fuel to existing threats from unions to go on strike over proposed pension changes.From March 1 next year, employer contributions to retirement funds will be included in employees’ salary packages and taxed as a fringe benefit.
Members can, however, receive a tax deduction on contributions to an approved fund of up to 27.5%, but with an annual ceiling of R350,000.
Pension and provident fund rules will be consolidated, preventing wholesale withdrawal of lump sums."The complications are enormous. Without doing a dry run, the chance for employee dissatisfaction is potentially vast," said FQ Financial Skills pensions expert Greg Preston.
His recommendation is for companies to do "test runs" on their payrolls and to communicate with workers well ahead of the implementation date. Funds themselves will need to gear up too, as rule changes would need to be drafted and communicated to their members."It is not cast in stone that you can leave a pensionable salary as it is. It will change from employer to employer and fund to fund. Between now and the end of February there is a need for investigation and communication," said Mr Preston.
A payroll consultant at Pastel, Byron Fraser, was unsure about how best to make the changes to payrolls based on current information. "Some clauses may cause an administration nightmare for payroll administrators."If employer contributions to provident funds were deemed to be taxable perks, for example, this could increase payroll tax and reduce take-home pay. "
There are three different ways to interpret how to pay it." He said clarification was needed, but this was only expected from the South African Revenue Service at the end of September."There will be huge unhappiness if people take home less." In large, unsophisticated workforces, for example, even taking home R30 less could result in labour issues, he said.
The Treasury last week moved to ward off threats of a strike by the National Union of Mineworkers by clarifying that default preservation proposals — which would only be implemented in at least two years — would not prevent people from accessing their money."There are a lot of scare stories going around that government is going to take pensions away. But the default process is not about banning access," said Treasury deputy director-general Ismail Momoniat.
Instead, what is being proposed is that when people change jobs, they cannot be forced to just take all their money out, as is the current default and popular practice now. The money should instead be transferred into a default fund and then requests made for withdrawals.
But FQ Financial Skills manager Bruce Kokkinn said a risk of strikes over pensions still existed, especially when it came to proposals to expand contributions to a national fund. "Someone leaving a mine to go back to Lesotho or Mozambique, would want to access that money."
This article first appeared on bdlive.co.za.