The effect of the Taxation Laws Amendment Act 25 of 2016 on retirement planning
Abstract
When the tax treatment of pension and provident funds before and after the implementation of the Taxation Laws Amendment Act 25 of 2016 is compared, the positive effect of this Act on retirement planning becomes clear. The alignment of the tax treatment of pension and provident funds, tax incentives for employers and employees and tax-free investments, is for the best and it will motivate South Africans to save for their retirement, which will lead to fewer vulnerable households. The big question is whether the alignment of the tax treatment of pension and provident funds, tax incentives for employers and employees and tax-free investments are sufficient to increase the percentage of individuals who can retire comfortably. The fund management issues that the members of retirement funds experience, namely inadequate communication with and from funds, is the thorn in the flesh that prevents the Taxation Laws Amendment Act 25 of 2016 from being a success. The trustees of retirement funds will only be fulfilling their fiduciary duties as delineated in article 7 of the Pension Fund Act 24 of 1956, if they protect the interests of the members of retirement funds by ensuring that adequate and suitable information on members’ rights, benefits and duties in terms of the rules of the funds are communicated to the members and the beneficiaries. Even though the Council on Financial Services has sent out numerous Pension Fund Circulars that specifically deal with communication requirements, these circulars are not law and they cannot be enforced. If a member of a pension fund does not receive adequate information from his or her fund, the person’s only remedy is to lay a complaint with the Office of the Pension Funds Adjudicator. A discussion of several rulings of the Office of the Pension Funds Adjudicator makes it clear that funds are only given a slap on the wrist if they fail to provide their members with benefit statements. The study makes several recommendations about how the Council of Financial Services and the Office of the Pension Funds Adjudicator can go about ensuring a better communication system or structure between retirement funds and its members. If retirement funds inform their members properly on the value of their benefits and how their retirement funds or lump sum are calculated and taxed, they will be informed about what their benefits are at any point and how much they still need to save to retire independently. Members will be able to do proper retirement planning, a right to which all hard-working South Africans are certainly entitled
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- Law [826]