EDITOR – During the long awaited State of the Nation address (SONA) South Africans must have expressed surprise when our Honourable President Jacob Zuma raised the issue of the Taxation Laws Amendment Act of 2015 on Reforming Retirement and admitted that when he signed it into law he was not made aware of its far reaching implications, which have come to light by the vociferous opposition by Cosatu.
Cosatu's issue may be very simplistic, in that they express the view that the State should not dictate how a beneficiary spends his retirement savings. The problem however is more systemic than that and one needs to get to the root of the matter.
The reforms as contained in the New Act seek to achieve, inter alia, “… that the Government is encouraging everyone who has a job or income to save for their retirement…” This would on the surface seem very noble but what the Government does not say is that when one saves for retirement and when the retiree decides to take his/her 33.33 per cent as a gratuity and the balance of 66.66 per cent as an annuity the taxation implications are extremely high.
To unpack this very simply I use this as an example: On retirement Joe Soap has accumulated a pension value of R3 000 000 and because the new law prevents him from taking the full amount he is compelled to take a gratuity of 33.33 per cent which would be R1 000 000 – this amount is then taxed as follows: the first R300 000 is taxed at the rate of 15 per cent, the second R300 000 is taxed at the rate of 27 per cent and the balance at the rate of 36 per cent – this adds to a tax of R224 000 leaving Joe Soap with R726 000 to take home. Joe Soap then has to take an annuity, i.e. a monthly amount and decides to take 10 per cent per month of the (66.66 per cent) R2 000 000 that remains with the pension fund. That would give him an annual taking of R200 000 per annum less tax of 36 per per annum amounting to R72 000 leaving him with R128 000 per annum.
I provide the example to explain the impact of the above legislation on the man in the street and then also to question the nobility of Government in that is the Government really concerned about encouraging everyone to save for their retirement or is it they are more concerned about how much of tax they would miss out should the retiree take out all that money form the fund.
If the Government was truly concerned then the Government would reconsider and reform the taxation as it relates to pension fund withdrawals because while the Government shows so much concern that forces legislation to encourage people to save, why then does the Government take a big slice of that hard earned saving away with such high rates of taxation.
Sicario
Durban
