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Provident Fund Changes

Published by Terence Tobin on

Provident Fund Changes - T DAY

Cast your mind back 10 years. This is when the South African Government announced changes to retirement funds. The aim of this to promote retirement savings.
 
Their intention is to standardise the treatment of all retirement products.
 
The day has arrived for the final alignment of provident fund benefits, dubbed T-Day.

Below I will outline some of the important changes.  If you have questions relating to your specific situation, please contact me.

Provident Fund and Provident Preservation Funds

When you retire from these funds, you are not bound to buying an income/annuity/pension.  You can take all your money (after paying tax) and invest as you see fit.  Until 28 February 2021, that is.

As from 1 March 2021, you will need to invest 2/3rds of your money into an annuity product, which will pay you a monthly income.  This is the same as those invested in retirement annuities, pension funds and pension preservation funds.

Let me explain the mechanics of this a bit further…

Vested Benefits

Non-Vested Benefits

Currently you are a member of a provident fund or provident preservation fund.  You have a “vested right” to the funds already in your provident investment.

You will have full access to this funds, come retirement time.

No compulsory annuitisation. No compulsory annuity income in retirement. You can have all your money (after paying tax).

Currently you are a member of a provident fund or provident preservation fund.  You make contributions to the fund, from 1 March 2021.

These contributions PLUS growth, will need to be annuitised when you retire.

This means, from age 55, you can have 1/3 in cash and 2/3 buys you an annuity (or as some call it “a pension”).

Younger or Older then 55 - there is more

If you are younger then 55, from 1 March 2021, you are obligated to buy an annuity come retirement time.

If you are older then 55, GOOD NEWS! All your pre T DAY and post T DAY contributions as well as growth, can be taken a taxable lumpsum at retirement. No compulsory annuitisation will apply to you.

What is not changing?

The current tax deductible limits for retirement fund contributions – these will remain at 27.5% of the greater of remuneration or taxable income, capped at R350 000 per tax year;

Allowable pre-retirement withdrawals from pension funds, provident funds, pension preservation funds, provident preservation funds and RAs these can still be accessed as taxable cash lump sums in full;

and if the value of your retirement benefits are below R247 500, the full value of your retirement benefit can be taken as a taxable cash lump sum.

What should you do?

Chat to your HR, financial advisor, financial planner and tax advisor.  Understand these changes in your personal situation. Ask lots of questions.

This is not bad at all, I think it makes it easier to understand for all investors.

Feel free to contact me for any assistance.

This blog post, as all other content on www.terencetobin.co.za is subject to this disclaimer.

Categories: Investments

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