Lize de la Harpe, Senior Legal Advisor at Sanlam Corporate
Introduction
On 23 October 2024 in Parliament, National Treasury (NT) presented their draft response to the comments received on the Draft Revenue Laws Amendment Bill, 2024 (RLAB) to Parliament. The RLAB bill was published on 1 August 2024 and the public had until 16 August 2024 to provide comment.
As you will recall, the RLAB proposed technical changes to the Revenue Laws Amendment Act, 2024, which established the Two-pot system that came into effect on 1 September 2024.
The reasons for the changes include the following:
- Clarification of the existing language as set out in the RLAA.
- Savings component at retirement.
- Seeding calculation date for provident fund members over 55 on T-day.
- Clarification on the treatment of section 37D deductions.
- The need to simplify the directives system and to cater for speedy implementation of this reform.
- Corrections required to the treatment of the vested component upon the member ceasing to be a tax resident.
Draft response document
In its draft response document, NT specifically addresses the following comments as raised by the public:
- Retirement calculations where the member has more than one contract
Clarity was sought as to whether retirement calculations should be based on each contract or each fund.
NT confirmed that the calculation must be performed on a per fund basis on retirement from that fund and not per contract.
- Savings component at retirement
The RLAB’s definition of the savings component allows a retiring member to choose to (1) take the remaining balance in the savings component as part of the retirement fund lump sum cash benefit, or (2) to transfer it to the retirement component to purchase an annuity.
The industry suggested amending the RLAB to explicitly allow for direct annuitisation from the savings component at retirement.
NT has accepted the comment and the revised RLAB will be amended accordingly.
- Seeding calculation date for provident fund members who were over 55’s on T-day
Both the Revenue Laws Amendment Act, 2024 and the RLAB state that provident fund members who were over 55 on T-day and who remained members of the same fund are automatically excluded from the two-pot system. These members do however have the option to elect to partake in the new system. The Revenue Laws Amendment Act, 2024 does not specify when these members must make this election. The RLAB accordingly sets out that these members have 12 months from the effective date of the two-pot system (i.e.: before 1 September 2025) to opt in.
Once the member elects to be included, the fund will have to seed 10% of their vested component (subject to a maximum of R30 000) to their savings component to make provision for immediate access. The concern to date is what date must be used when doing this calculation.
The Revenue Laws Amendment Act, 2024 states that the fund must use the member’s fund value as at 31 August 2024 for this calculation, regardless of when the member opts in. The previous draft of the 2024 RLAB allowed the seeding amount to be calculated based on the fund value as at the end of the month in which the member opted in. Due to the severe time constraints that arose at the time (coupled with the disparity between regulatory clarity and the demand for system development to give effect to these changes), administrators proceeded with developing their admin systems on the basis as set out in the previous version of the RLAB.
However, the 2024 RLAB version, published on 1 August, reverted back to the wording as set out in the Revenue Laws Amendment Act, 2024 (i.e.: using 31 August 2024 as the date to calculate the seeding). Comments were raised on the impact hereof on administrators who had already developed their systems as per the previous version of the RLAB.
NT agreed with the comments raised and has undertaken to amend the wording of the RLAB to allow flexibility as to what date must be used to calculate seeding from the vested component to the savings component.
- Section 37D deductions – maintenance orders
The Revenue Laws Amendment Act, 2024 allows for section 37D deductions, as outlined in the Pension Funds Act of 1956, to be made against the savings component, vested component, and retirement component.
Clarification was requested to make it clear that amounts due in respect of maintenance orders must also be deducted proportionally across all three components, same as other section 37D deductions.
NT has accepted the comment and the revised RLAB will be amended accordingly.
- Clarity on calculating the one third cash at retirement
NT agreed that the RLAB will be amended to make it clear that T-day vested amounts must also be taken into account when calculating the 1/3rd that can be taken in cash at retirement.
- Members of preservation funds – commutation upon ceasing to be a tax resident
Prior to the RLAA, only members of preservation funds and retirement annuity funds could commute their fund value upon ceasing to be a tax resident for an uninterrupted period of 3 years. The RLAA extended this to pension fund and provident fund members.
The RLAB as currently drafted enforces a three-year waiting period for preservation fund members who have changed their tax residence. Comment was made that this should be revised so that the three-year waiting period only applies if the member has already made their one-time withdrawal from the preservation fund, so as to safeguard an existing or vested right.
NT has accepted the comment and the revised RLAB will be amended accordingly.
Conclusion
The final Revenue Laws Amendment Bill is expected to be published with the Medium-Term Budget Policy Statement later this week whereafter the industry and public will once again have the opportunity to provide comment.
ENDS
