Pension Budget impact and comments PDF Print E-mail
Thursday, 24 February 2011 06:47

Fin 24 Article
"Employer contributions now taxable

Feb 23 2011 14:04 Greta Steyn

Pretoria - From March 2012, an employer’s contribution to an employee’s retirement would be treated as a taxable fringe benefit, Finance Minister Pravin Gordhan announced.

At the same time, employees would be allowed to deduct up to 22.5% of taxable income for contributions to approved retirement funds, up to a maximum of R200 000 per year.

With a view to protecting workers’ savings, it was proposed that the one-third lump sum withdrawal limit applicable to pension and retirement annuity funds should also apply to provident funds."

Initial Comments

  1. Employees will be taxed on all approved and unapproved benefits but will only have a deduction on the approved schemes and policies.
  2. Average costing of unapproved GLA schemes will have the young paying tax on the subsidies for the older members and may demand individual costing.
  3. The status of the employer as a stakeholder is brought into question and the use of the employer reserve on funds now becomes problematic as there can no longer be any premium holiday.
  4. If the member is bearing the entire cost of the fund why then should the employer have the right to appoint trustees on the fund board?
  5. The fund structure may have an effect on member take home salary depending on the inclusive or exclusive nature of the cost provisions in the fund rules.
  6. All Provident funds should convert to Pension funds.
  7. All funds would need to amend their rules to reflect the employer as non-contributory.
  8. The above gives credence to the 2010 Taxation Amendment Laws which makes contributions to PHI schemes taxable.
  9. The vendors of all unapproved schemes including the pooled risk arrangements will have to sharpen their pencils in defence of the after tax cost and the problematic profit share on pooled risk arrangements - who does this money belong to?
  10. The above proposal will bring into the tax net those employers who have not been taxing the unapproved benefits as a perk for their employees.
  11. In all the proposed changes seem to bring equality into the pension environment and make both employer and fund administration much easier.