SOUTH AFRICA: BUDGET SPEECH 2022 – RETIREMENT FUNDS

Wednesday, February 23, 2022
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National Treasury’s proposal last year to tax emigrants on their retirement interests even if they remained members of such retirement funds, set the cat amongst the pigeons. The proposal was intended to address the scenario where a double tax agreement (DTA) resulted in South Africa losing the taxing rights in respect of retirement funds. Although the proposal was withdrawn, there was concern that the proposal could resurface at some stage. The goods news is that it now appears that the perceived tax leakage will be addressed by renegotiating the relevant DTAs, and not by amending domestic tax legislation.

A December 2021 discussion paper invited comments to a set of proposed reforms to enable pre-retirement access to a portion of a member’s retirement funds, while preserving the balance for retirement (referred to as the ‘two-pot retirement system’). Legislative amendments will only follow once public workshops have been held.

Members of a retirement annuity fund are currently permitted to transfer from one fund to another, but only if the total interest in the transferor fund is transferred. The rules will be amended to allow these members to transfer one or more contracts in a particular retirement annuity fund.

A number of amendments are proposed to clarify or fix certain anomalies in the context of retirement funds, such as:

  • Amendments in the context of the compulsory annuitisation requirement to ensure that certain vested rights are not forfeited if a transfer is made from a provident fund or provident preservation fund to a public-sector fund;
  • Addressing an anomaly that results in a retirement fund lump sum being taxed as a withdrawal benefit, where a provident fund member who is younger than 55 retires due to ill health; and
  • Fixing an anomaly which could result in contributions made prior to 1 March 2021 not being included in tax-free transfers from a pension to a provident fund.