T-Day, the day a new tax regime for retirement funds is to be introduced, is now officially March 1, 2015. From this date most taxpayers will be able to deduct a higher amount in contributions from their taxable income.
P-Day, however, is still subject to further negotiations with various parties including trade unions and employers. P-Day is the day on which it is proposed that it will be compulsory to preserve your retirement savings until retirement and then use at least two-thirds to purchase a pension to provide you with an income for life.
Measures to prevent fund members cashing in retirement savings before retirement are seen as a key retirement reform issue by the industry and government, but the proposals detailed in a discussion paper published by National Treasury last year are still subject to extensive debate, particularly with the trade unions.
The T-day date was confirmed on Thursday with the publication of the Taxation Laws Amendment Bill, which gives effect to the proposals made in the Budget this year.
The key changes to be implemented on T-day are:
* You will be able to deduct both your and your employer’s contributions to a pension fund, provident fund or retirement annuity fund of up to 27.5 percent of your remuneration or taxable income, whichever is greater.
* There will be a rand cap of R350 000 on the total amount you may deduct from your taxable earnings in any tax year. This is to prevent the wealthy claiming excessive deductions.
* Your employer’s contributions, including any premiums for group life assurance, will be added to your taxable income as a fringe benefit, but will be deductible from your taxable income as part of the 27.5 percent deduction. Special formulas will be used to calculate the employer contributions to defined-benefit and hybrid retirement funds.
* Contributions in excess of the annual cap may be rolled over to future years when you may not reach the R350 000 amount. You will be able to add the nominal value of any additional amounts unclaimed to the tax-free lump sum at retirement.
* From T-Day, any new contributions made to a provident fund will be subject to the same annuitisation rules as pension funds, namely that at least two-thirds of the savings must be used to purchase a pension at retirement.
In a media release, Treasury says consultations will continue to take place with interested parties, including trade unions, businesses and public servants, to discuss the proposed reforms.