The minister of finance announced during his 2014 budget speech that new legislation for retirement annuity funds will come into effect 01 March 2015.
Employers should be aware of these changes and educate their employees to minimise the surprise factor when they see the effects on their first payslips in March next year.
Although the legislation is still not final – National Treasury released a second draft of the TLAB for public comment last week – most of the requirements are known and employers can start educating their employees on possible changes that will affect them directly.
Until 28 February 2015, the taxation of pension, provident and retirement fund contributions should still be dealt with as follows:
1. Pension fund contributions – no PAYE implication for the employer contribution. Employee contributions tax deductible but subject to an annual deduction limit (the greater of R1750 or 7.5% of retirement funding income per annum)
2. Provident fund contributions – no PAYE implication for either the employee or employer contribution.
3. Retirement annuity fund contributions – employer contribution is taxed as a fringe benefit and is also then included as a deemed employee contribution. Employee contributions are tax deductible subject to an annual deduction limit (the greater of R1750, R3500 less pension contribution allowed or 15% of non retirement funding income per annum)
From 01 March 2015, the rules for all retirement funds, whether pension, provident or retirement annuity, will be the same.
1. Fringe Benefit – employer contributions made towards any pension, provident and/or retirement annuity fund will now result in a taxable fringe benefit for the employee. The value of the fringe benefit depends on whether the fund is a defined benefit or contribution fund.
2. Deemed employee contribution – the value of the fringe benefit is also included as a deemed employee contribution for tax deduction calculations.
3. Tax deduction – the total contribution made by an employee will be subject to a single annual deduction limit. This means an employee will receive all contributions made towards pension, provident and/or retirement annuity funds as a tax deduction subject to an annual limit (the lesser of R350 000 or 27.5% of remuneration per annum)
The impact will be high on employees contributing towards pension or provident funds, especially if the employer makes a contribution as well.
For now, the subject has not been discussed in detail as the legislation still needs to be finalised and the implementation date is more than 6 months away but due to the nature of this new legislation and its possible effect on employees’ net earnings, I think employers should start to read up on the topic and discuss it with their employees.