National Fund for Municipal Workers

Retirement reform update


TAXATION LAWS AMENDMENT BILL (TLAB), 2015


Over the past four years, the National Fund for Municipal Workers (NFMW) has, on numerous occasions, communicated progress on retirement reform proposals by National Treasury. These regulations were initially scheduled for implementation in March 2015, but were postponed amid concerns that members would not be able to access their pension benefits prior to retirement, once these new regulations were  introduced. These concerns unfortunately, fuelled premature resignations to access retirement funds. 

On the 1st of March 2016, the provision of the 2015 Tax Laws Amendment Act (and the 2013 and 2014 Acts) relating to retirement came into effect. It provides tax harmonisation for the equal treatment of contributions made to provident and pension funds. The implementation date for the annuitisation of provident funds was further postponed.

Changes that came into effect 1 March 2016 (T-day)

  • The tax deduction for contributions to all retirement funds (including provident funds) increased to 27.5% of the greater of taxable or remuneration, up to a cap of R350 000 per year.
  • The minimum threshold required for annuitisation for pension and retirement annuity funds were increased from R75 000 to R247 500.
  • All other provisions legislated in the 2015 Tax Laws Amendment Act (and all other tax laws) came into force.

The National Fund for Municipal Workers implemented “T-day” on 1 March 2016. Retirement funds remain tax and cost efficient investment vehicles – especially larger retirement funds like the NFMW that benefit from economies of scale. 

Reform principles that have been postponed

  • Government is flexible on the implementation of annuitisation for provident funds, and proposed implementation from 1 March 2018.
  • Provident fund members will not be required to annuitise contributions that were made to their funds before 1 March 2018, they can therefore still access retirement benefits accumulated up to 28 February 2018 in a lump sum.
  • To ensure the integrity of the retirement system, the ability to transfer tax-free from pension funds to provident funds was also delayed until 1 March 2018. 

The reform proposals are part of a broad overhaul of the retirement industry, which aims to encourage household savings and improve the financial situation of especially vulnerable individuals. Treasury has reiterated that the formulation of new regulations was not an effort to nationalise pension funds. Treasury also said it had no intention of introducing preservation “through the back door”. The law has not changed to prevent members of provident and pension funds from accessing their retirement savings upon resignation, including upon dismissal or retrenchment. The legislative amendments therefore do not implement any compulsory preservation.

NATIONAL SOCIAL SECURITY FUND (NSSF)

On 25 November 2016 Government tabled the much-anticipated consolidated paper on a National Social Security Fund (NSSF) at NEDLAC. According to the consolidated paper, the social partners at NEDLAC are requested to finalise the matter in less than a year. This seems unrealistic at this stage, especially as it has taken four years just for the revised paper to be published.

The fund advises members to not make any rash financial decisions if they have any concerns, and they should rather contact the fund for further clarity. Members cashing out their savings will not only pay significant amounts of unnecessary tax, but will also lose out on the growth on their savings and will need to save significantly more in future if they wish to safeguard their standard of living in retirement. Remember that your vested rights and accumulated benefits are protected.

Indemnity statement: The National Fund for Municipal Workers does not accept liability for any loss, damage or expense that may be incurred as a direct result or consequence of reliance upon the information in this document. If there is any conflict between the information in this document and the actual Rules of the Fund, the actual Rules of the Fund will prevail.