Fin 24 Article
"Employer contributions now taxable
Feb 23 2011 14:04 Greta Steyn
- 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
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
Employees will be taxed on all approved and unapproved benefits but
will only have a deduction on the approved schemes and policies.
Average costing of unapproved GLA schemes will have the young paying
tax on the subsidies for the older members and may demand individual
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.
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?
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.
All Provident funds should convert to Pension funds.
All funds would need to amend their rules to reflect the employer as non-contributory.
The above gives credence to the 2010 Taxation Amendment Laws which makes contributions to PHI schemes taxable.
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?
The above proposal will bring into the tax net those employers who
have not been taxing the unapproved benefits as a perk for their
In all the proposed changes seem to bring equality into the pension
environment and make both employer and fund administration much easier.
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