14 Mar

Retirement fund contributions

Category: Latest News
Written by: Henry Dul

The Taxation Laws Amendment Act No. 31 of 2013 that was published in Government Gazette No. 37158 on 12 December 2013 changes the tax treatment of contributions and aligns the annuitisation requirements between pension, provident and retirement annuity funds.

 

Position from 1 March 2016

 

Employer contributions (both pension and provident fund members) will be taxed as fringe benefits in the hands of the member.

 

A member can deduct up to 27,5% of the higher of their remuneration and taxable income,

subject to a maximum of R350 000 per year, for both member and employer contributions.

These deductions must be taken into account by the employer in each month during which the

fringe benefits tax is levied.

 

Pension fund member:

 

No impact on take-home pay if the member’s total contributions are below the tax thresholds

referred to in the paragraph above.

 

Currently members get a deduction of up to 7,5% of their retirement funding employment (generally their pensionable salary) on their own contributions, and no deduction on their employer contribution. From 1 March 2016, they will pay fringe benefit tax on the employer contribution, but at the same time get a deduction on both their own and their employer’s contributions, subject to the limits referred to above. This will leave them in the same position as before 1 March 2016, provided the contributions are below the tax thresholds. 

 

This can be illustrated with the following example:

 

Example:

 

Susan’s pensionable salary is R100 000 per annum.

Her pension fund contribution is 5% (R5 000 per annum), and her employer’s contribution is 10%

(R10 000 per annum). There are no other deductible benefits.

 

Tax position before 1 March 2016:

 

R5 000 was deducted from her R100 000, so she only paid tax on R95 000.

 

Tax position after 1 March 2016:

 

She pays fringe benefit tax on the employer contribution of R10 000.

We add that R10 000 to her pensionable salary of R100 000, to get to a taxable salary of

 

R110 000. At the same time, she gets a tax deduction for both her R5 000 contribution and the

employer’s R10 000 contribution.

R110 000 – R15 000 = R95 000.

Her position after 1 March 2016 and before 1 March 2016 is the same.

 

Provident fund member

 

Positive impact on take-home pay.

 

Currently members do not get an immediate deduction on their own contributions, and also no

deduction on their employer contribution. From 1 March 2016, they will pay fringe benefit tax on the employer contribution, but at the same time get a deduction on both their own and their employer’s contributions. This will leave them in a better position than before 1 March 2016. This can be illustrated with the following example:

 

Example

 

Susan’s pensionable salary is R100 000 per annum.

 

Her provident fund contribution is 5% (R5 000 per annum), and her employer’s contribution is 10% (R10 000 per annum). There are no other deductible benefits.

Her total cost to company is R110 000 (pensionable salary of R100 000 + employer contribution of R10 000).

 

Tax position before 1 March 2016:

 

The member contribution was not deducted from Susan’s pensionable salary when calculating the member’s tax, so she paid tax on the full R100 000. (A member’s own provident fund contributions did not rank for deduction during the years in which the contributions were made).

 

Tax position after 1 March 2016:

 

She pays fringe benefit tax at her marginal tax rate on the employer contribution of R10 000. We add that R10 000 to her pensionable salary of R100 000, to get to a taxable salary of R110 000. At the same time, she gets a tax deduction for both her R5 000 contribution and the employer’s R10 000 contribution. Her taxable pensionable salary is as follows:

 

R110 000 – R15 000 = R95 000.

 

The position after 1 March 2016 is better than the one before 1 March 2016 as far as her take-home pay is concerned; it increases by R900, which is the tax payable on R5 000, calculated at a

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marginal rate of 18%.

25 May
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30 Jan

AMENDMENTS TO THE PENSION FUNDS ACT

Category: Latest News
Written by: Henry Dul

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AMENDMENTS TO THE PENSION FUNDS ACT

The President signed the General Laws Amendment Act on 16 January 2014.  The amendments to the Pension Funds Act have thus now come into effect.  A couple of important aspects of the amendments are listed below. 

Defined Contribution Funds

The definition of a ‘defined contribution’ fund has changed, so has the calculation of a member's individual account (member's share) in the fund.  The change allows for ‘reasonable’ expenses to be deducted from contributions received i.e. both member and employer contributions.

Boards of Trustees

Section 7A(1A) was added to the Act which has the effect that the composition of the board shall always comply with the requirements in the rules and a vacancy must be filled within such period as prescribed.  

Section 7C now requires trustees, in pursuing the object of the board, to have a fiduciary duty to the fund and members and beneficiaries in respect of accrued benefits.

Section 7D now allows the Registrar to prescribe communication requirements (the current PF circulars in place provide a guideline in respect of fund communication and can now be prescribed by the Registrar).  

Section 7D(2)(a) now allows the board to delegate certain of its functions to a person, group of persons or a committee of the board e.g. a sub-committee.

Section 7F provides some protection to trustees in that a court of law may excuse an individual board member of responsibility.   Trustees were previously individually and severely liable.

A board member must, within six months of appointment/election, attain such levels and skills as may be prescribed by the Registrar by notice in the Gazette.  To date, no levels and skills have been prescribed by the Registrar, but the Registrar did establish a working committee that is in the process of drafting a curriculum for trustees.

Principal Officer and Deputy Principal Officer

An amendment to Section 8 allows the board to appoint a Deputy Principal Officer.  The Principal Officer may delegate some of his/her functions to the Deputy Principal Officer.

Note:

The duties of the Principal Officer include:

 

           Ensuring that decisions of the board are executed;

           Ensuring that the fund complies with the formal requirements of the law, including directives from the Registrar, SARS and other relevant regulatory authorities;

           Liaising on behalf of the board with service providers to the fund;

           Contributing at board meetings even though Principal Officer has no voting rights;

           Ensuring that governance of fund complies with applicable legislation;

           Meeting regularly with the chairperson of the board of trustees to enable the chair to monitor the operations of the fund.

 

In summary, the Principal Officer has to ensure compliance with the legal requirements and otherwise.  The Principal Officer should have a sound knowledge of the employee benefits environment in order to ensure that all compliance requirements are met.  The Financial Services Board and other role players are currently discussing the professionalization of the role of the Principal Officer. 

 

The Act now allows for the appointment of a Deputy Principal Officer.  Boards should consider appointing a Deputy Principal Officer.  It is suggested that such Deputy Principal Officer specialises in compliance and is independent from the board, employer and service providers.

 

Disclosure (whistle blowing)

Certain disclosures made to the registrar by a trustee, principal officer, deputy principal officer, valuator, or other officer of the fund or employee of the fund or an administrator will be protected.

The administrator and each individual trustee now have a whistle blowing responsibility on any matter which in their opinion may prejudice the fund or its members.

Payment of contributions

The following persons will be personally liable for compliance with section 13A (contributions and schedules) -

o                         every director of a company that is regularly involved in the management of the company's overall financial affairs, or every member of a CC who controls or is regularly involved in its financial affairs; and

o                         if not a company or CC, every person on whose instructions the body acts or who controls or is regularly involved in the management of its financial affairs 

 

·       Disclaimer:   The information contained in this document does not constitute professional advice.    The contents should be used at your sole discretion and Independent Trustee Services is not liable for damages that may be caused by the use of this note.   The information is intended as a guideline only and it is recommended that you discuss your benefits with your personal financial planner.

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