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Provident fund fight drags on

Friday, 19 February 2016   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (BDlive)

Finance Minister Pravin Gordhan on Thursday rejected the Congress of South African Trade Union’s (Cosatu’s) suggestion that the Treasury dump its compulsory annuitisation law instead of merely postponing it for two years so that consultations can take place.

The minister insisted there was scope to redesign the measure to take into account the federation’s concerns.

But Cosatu demanded a total capitulation by the government and not merely a concession. It is adamant there is no room for compromise on the law, which it insists should be thrown out.

The federation plans to continue with its mobilisation against the provision, which was due to come into effect on March 1 until the Cabinet decided on Wednesday to delay its implementation until March 1 2018.

Cosatu, the National Union of Metalworkers of SA and the Association of Mineworkers and Construction Union threatened to strike over the issue.

Mr Gordhan expressed confidence in a briefing that the Treasury’s original proposal for the compulsory annuitisation of two-thirds of provident fund savings on retirement could be redesigned over the next two years to take account of labour’s concerns. Currently workers can take the full amount of their savings as a cash lump sum on retirement, but the Treasury argues that this leaves them destitute in their old age.

Asked why annuitisation should not be dumped altogether, Mr Gordhan said: "Why throw in the towel on a matter that is actually in the long-term interests of people? If we scrap everything, then we scrap the tax benefit as well."

The tax benefit refers to the Treasury’s decision to allow provident fund members to benefit from a tax deduction for their contributions for the first time from March 1. This is provided for in the Taxation Laws Amendment Act and was meant to go with the annuitisation clause.

The deduction already applies to pension fund members and will result in higher take-home pay for provident fund members. This could be a persuasive argument for them to accept the annuitisation proposal over the next two years. The tax deduction — heartily welcomed by Cosatu — will increase on March 1 for all taxpayers to 27.5% of taxable income or remuneration with an annual cap of R350,000 placed on the benefit.

"A core principle of tax legislation on the deduction of contributions to retirement savings is that this is provided on the condition that there is annuitisation. Even though the requirement (for provident funds) to annuitise is to be postponed, the tax deduction will still be allowed whilst the review on annuitisation is undertaken. If no agreement is reached in the next two years regarding annuitisation, this tax benefit to provident fund members will be reviewed to achieve fairness between retirement funds," the Treasury said.

Treasury officials said that transfer on a tax-free basis of savings from pension funds to provident funds would also be delayed until March 1 2018, though this would not prevent the transfer itself from taking place.

Minister in the Presidency Jeff Radebe announced at a post-Cabinet briefing on Thursday that an amendment to the Taxation Laws Amendment Act would be tabled in Parliament in the next few days to give effect to the postponement — the second in two years to a law that entered the statute books in 2013.

Cosatu said the postponement was not "yet a victory for the workers, but it is the first step towards the total scrapping of those aspects of the law that workers do not want".

Workers wanted a commitment that the state "will expunge all the areas that prevent workers from accessing their money".

Leon Campher, CEO of the Association for Savings and Investment SA, said it was relieved that the bulk of the provisions of the Taxation Laws Amendment Act would be implemented on March 1. "Under the circumstances, we concede that government had little choice but to put forward a compromise."

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