The comprehensive reform of our retirement-saving system, initially targeted for completion by this year, has stalled, but piecemeal adjustments, mainly to the taxation of retirement savings, have continued.
Reforms continue to be studied by a ministerial committee and an inter-departmental task team. The latest proposed tinkering to the taxation of retirement savings includes:
- Post-retirement conversion of annuities (pensions) to lump sums: The favourable taxation of retirement fund lump sums, including a R300 000 exemption at a member's retirement or death, is to be extended to apply to later lump-sum withdrawals of residual amounts in investment-linked living annuities that are too small to justify further pension payments. The tax benefit will be calculated by aggregating these amounts with any previous lump sums.
- Conversion of annuities on the death of a pensioner: When the recipient of a pension dies, the annuity (pension) flow may be bequeathed to another person. In such cases, the new beneficiary may wish and is allowed to convert the annuity to a lump sum. Any such lump sum will be taxed in the hands of the new beneficiary on the same tax table that applies to lump sums on retirement and death. The amount will be aggregated with any lump sums already received or to be received.
- Any amounts deducted from pension savings, such as for unpaid housing loans guaranteed by a retirement fund, are to be treated as lump-sum withdrawals for taxation purposes, using the early withdrawal or at retirement/death lump-sum taxation tables.
- Limitations will be removed on the tax-free transfer of savings from umbrella retirement funds to preservation funds when an employer withdraws from an umbrella fund. The transfers will now be permitted.