The Taxation Law Amendment Act of 2020 was signed into law by the President on 20 January 2021. This has enacted the long-awaited legislation which provides for the same annuitisation rules that apply to members of pension funds, pension preservation funds and retirement annuity funds, to be applied to members of provident funds and provident preservation funds, after 1 March 2021. The Taxation Law Amendment also includes an update to legislation for the treatment of Lump Sum Disability benefits.

On 1 March 2021, your total savings will be split into two benefits as follows:

Vested benefits

This consists of your accumulated savings as at 1 March 2021 together with the investment return on those savings up to your retirement date. This benefit will be treated in the same way as they are now i.e. you will be able to access it as a lump sum. This portion is called your ‘vested rights’. This includes any contributions in respect of February 2021 paid and allocated in early March 2021. You will always be able to take your vested rights benefit as a lump sum at retirement.

Non-vested benefits or two-thirds pension

This consists of your contributions to savings after 1 March 2021 together with the investment return on those savings up to your retirement date. This benefit will be subject to the new rules meaning that you will need to use two thirds of this benefit to buy an annuity and the remaining one third can be taken as a lump sum. This is also called your ‘non-vested rights.’

Lump sum disability benefits if you are over the age of 55 on 1 March 2021 

All amounts which are contributed or accrue before and after 1 March 2021 are vested benefits. A lump sum disability benefit will be part of the vested benefits which means that you can receive this payment in cash, after tax.

Example:

If your lumpsum disability benefit amounted to R 250,000 and you are over the age of 55, you may take the full amount of the lump sum disability benefit, paid from a provident fund, in cash.

If you transferred to a new fund after 1 March 2021, a disability benefit paid out of the new fund will be a non-vested benefit which means that annuitisation rules will now apply to the lump sum disability benefit. You can take a maximum of one third of your lump sum disability benefit, paid from a provident fund in cash and the balance must be used to purchase a compulsory pension.

If the total lump sum disability benefits plus your fund credit is less than R 247,500, you can take the full amount in cash.

Lump sum disability benefits if you are under the age of 55 on 1 March 2021

If you qualify for a lump sum disability benefit after 1 March 2021, the lump sum disability benefit payable will not fall into the vested benefits. The benefit is added to your fund credit. If the lump sum disability amount and the fund credit which accrued after 1 March 2021 exceeds the R 247,500, the annuitisation rule will now apply.

Example:

If your lumpsum disability benefit amounted to R 250,000 and you are under the age of 55, you can take a maximum of one third of your lump sum disability benefit, paid from a provident fund in cash and the balance must be used to purchase a compulsory pension. If the total lump sum disability benefits plus your fund credit is less than R 247,500 you can take the full amount in cash.

Master Builders KwaZulu-Natal are the administrators of the KwaZulu-Natal Retirement and Provident Funds. The benefits contained in the funds that we administer are highly competitive as they have been recently enhanced at NO ADDITIONAL COST.

Contact us today to do a comparison of what we can offer you for the same value that you are contributing to your current fund.

Secure your retirement today to protect your future.

Vishane Pramrajh | Employee Benefits Manager