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Reform of retirement savings to go ahead

Wednesday, 25 November 2015   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (BDlive)

The African National Congress (ANC) has resolved to go ahead with proposed retirement reforms despite strong opposition by the Congress of South African Trade Unions (Cosatu).

The party believes the reforms are in the best long-term interests of workers.

The committee’s informal adoption on Tuesday of the proposal to enforce the annuitisation of two thirds of provident fund savings on retirement as from March 1 2016 came after prolonged attempts to win Cosatu’s agreement. The measure is contained in the Taxation Laws Amendment Bill which is due to be adopted by the National Assembly either on Wednesday or on Thursday.

Last year Cosatu succeeded in having implementation of the measure — introduced into law in 2013 — postponed for a year and the finance committee has been very reluctant to cause a confrontation with the organisation over it.

The finance committee has introduced a new clause into the bill requiring Treasury to undertake a comprehensive review of the implementation of the new regime within two years. It is also insisting that Treasury undertake a "massive" communication campaign to educate workers as to the benefits of the provision which is intended to ensure the preservation of retirement savings.

Committee chairman Yunus Carrim said the committee had done "everything possible, under difficult circumstances, to try to get consensus on these proposals, and we deeply regret that we were not able to. Given the levels of indebtedness, we are excruciatingly aware of how strongly workers feel about access to their provident funds".

However, Cosatu remains resolutely opposed to the reforms, which it says have led to thousands of workers resigning from their jobs to get access to their savings. Currently, provident fund members can take their accumulated provident fund savings as a cash lump sum on retirement or resignation.

The federation is expected to debate what action to take at its national congress on Wednesday. It has warned of protest and withholding of worker support in next year’s local government elections if the measure becomes law.

Cosatu is currently holding its national congress and its spokesman Sizwe Pamla said the issue of the proposed retirement reform would be discussed either on Wednesday or on Thursday morning. "We want workers to take a resolution and guide us to what action to take," he said.

ANC whip on the finance committee Des van Rooyen pointed out that apart from encouraging savings, members of provident funds would for the first time be able to get a tax deduction for their own contributions and thereby increase their take home pay. The introduction of a cap on annual tax deductions of 27.5% or R350,000 whichever is the lessor would also prevent tax avoidance by high income earners.

Treasury is concerned at the way high income taxpayers structure their remuneration packages by using provident funds to reduce their tax liability. They rely on the fact that employer contributions to provident funds are a tax-free fringe benefit so employers make large contributions of up to 30% of the taxable income of high earners to the funds thereby enabling these employees to benefit from non-taxable income and large lump sums on retirement.

Mr Van Rooyen also noted that not many workers would be affected in the first few years of implementing the new measure because it would only kick in once the threshold of R247,500 was reached. Their right to convert the savings they have accumulated up until the implementation date will not be affected. Provident fund members will also be able to take all their savings as a cash lump sum on resignation.

Treasury data shows that about half of provident fund members will not be affected by enforced annuitisation for 10 years after the implementation date as their total contributions will be below R247,500.

Treasury deputy director general Ismail Momoniat told the committee that South African Revenue Service data showed that there were over 2.5-million contributors to provident funds of which about 1.25-million were liable for tax and would receive an increase in net pay.

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