Cosatu threat delays vote on direct retirement savings.

 

Threats and political pressure have prompted Parliament’s standing committee on finance to delay a vote on a Treasury proposal to restrict direct access to retirement savings.

The issue has pitted the Treasury against the Congress of South African Trade Unions (Cosatu) over the past two years. Cosatu won last year’s round, forcing the proposal’s introduction to be delayed from March 1 this year to March 1 next year.

 

However, on Monday the federation said it was preparing a campaign against the Treasury, and should the proposal proceed it would not fully campaign for the African National Congress ahead of next year’s local elections.

The proposed reforms will eventually force the annuitisation of two-thirds of provident fund assets on retirement.

The retirement fund industry is strongly in favour of the proposal and has spent millions of rand on new systems in preparation for its implementation.

On Tuesday, the standing committee on finance was due to vote on the Taxation Laws Amendment Bill, but committee chairman Yunus Carrim said this would now be held over until later this week or until Tuesday in order to seek consensus with those opposed to it.

The committee has hesitated about adopting the proposal, knowing the political ramifications, especially ahead of next year’s local government elections. But time is of the essence because the amendment bill contains a raft of other tax proposals, which were announced in the February budget.

The National Assembly is due to shut down for the long recess on Friday but may have to extend its work by a week to adopt outstanding bills. The strike by staff in Parliament has disrupted the work of committees and the House.

Cosatu has argued that the reforms should await the release of a discussion paper on comprehensive social reform. But the Treasury says this is not necessary because the proposal is in no way in conflict with the paper’s proposals.

The Treasury has also said implementation of the social security reforms would take a number of years, and that they would encourage the preservation of savings for retirement, provide certainty to the industry, and simplify and harmonise retirement funds.

Along with annuitisation will come the introduction of tax deductibility of up to 27.5% of taxable income of retirement contributions, or a maximum of R350,000, whichever the smaller.

Treasury deputy director-general Ismail Momoniat has said few workers will be affected by the requirement in the short term, that it will only kick in once provident fund assets reach R247,500, and that it will not affect the vested rights members have over the fund contributions they have made up to the time the new dispensation takes effect.

He told MPs on Tuesday that if Parliament adopted the measure the Treasury would go on an intensive campaign to help workers understand what it entails.