The reforms seek to achieve the following:
Simplify the tax treatment of contributions to retirement funds – the current system is complex and confusing;
Improve vertical equity between high and low income taxpayers by imposing a limit on the total allowable deduction to high income taxpayers;
Improve horizontal equity by harmonising the same deduction across all retirement funds;
Enhance post-retirement income by extending the requirement to purchase an annuity to provident funds;
Vested rights are protected, ensuring that the impact of annuitisation takes longer to be felt by provident fund members.
The Government is encouraging everyone who has a job or income to save for their retirement, and does so by allowing a tax deduction up to 27.5% of income (up to R350 000) on all contributions made towards a retirement fund.
The Government also wants to be fair and allow this benefit to all members of any retirement fund – while members of pension and retirement annuities enjoy this benefit for their own contributions members of provident funds do not.