In his opening speech, Minister of Finance Pravin Gordhan identified some of the factors which support the case for a radical transformation of economic models and inclusive growth.

Gordhan placed emphasis on the fact that the middle class have been left behind, 95% of the wealth in South Africa is in the hands of 10% of the population, 35% of the labour force is unemployed or has given up on finding work and poverty is concentrated in townships and rural areas. 

Added to this, Gordhan pointed out that South Africa's growth has been too slow. At 1% a year in real per capita terms over the past 25 years it is well below that of countries such as Brazil, Turkey, Indonesia, India or China.

In spite of this, the taxation on lump sum withdrawals, retirement benefits and severance benefits remains unchanged. Similarly, deductions remain the same while the annual limit on tax free savings may be increased. What is promising are the proposed reforms set out below, as they will clarify a number of issues for the industry and employers. 

Retirement fund lump sum withdrawal benefits

Budget 201718 Table 1

Retirement fund lump sum benefits or severance benefits

Budge 201718 Table 2


  • Retirement fund contributions during a year of assessment are deductible by members of those funds. Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employee
  • The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits) 
  • The deduction is limited to a maximum of R350 000. Any contributions exceeding the limitations are carried forward and can be deducted in subsequent years (subject to the prevailing limits in those years). The amounts carried forward are reduced by contributions set off against retirement fund lump sums and against retirement annuities

Tax-free savings accounts

  • It is proposed that the annual allowance be increased from R30 000 to R33 000 

Retirement reforms – what to expect going forward

Default regulations to improve market conduct:

  • The second revised draft of the default regulations were released for public comment in December 2016. The default annuity strategy section has been considerably simplified, given the difficulty of automatically defaulting members into annuity products that could be irreversible. The blanket ban on performance fees and guaranteed products has been addressed and may be reviewed in the final regulations published later this year

Preservation of benefits after reaching normal retirement dates:

  • In 2014, amendments were made to the Income Tax Act that allow individuals to elect to retire and the date on which the lump sum benefit accrued to the individual depended on the date on which the individual elected to retire (not on the normal retirement age). Currently, once the individual elects to retire, the Income Tax Act does not cater for the transfer of lump sum benefits from one retirement fund to another. It is proposed that transfers of lump sum benefits be allowed from a retirement fund to a retirement annuity fund, subject to fund rules

Tax-exempt status of pre-March 1998 build-up in public-sector funds:

  • Currently, the Income Tax Act makes provision for the tax-free transfer of pre-March 1998 lump sum benefits from a public-sector fund to a pension fund. It is proposed that subsequent transfers of these lump sum benefits to another pension fund also be tax free

Removing time limit to join an employer umbrella fund:

  • Existing employees who do not join a newly-established employer umbrella fund have 12 months within which to join the fund, after which they are unable to join. To encourage employees to contribute towards their retirement and remove practical difficulties, it is proposed that the 12 month limit be removed, thereby allowing employees to join without me restrictions, subject to the rules of the fund. 

Pension Fund Act amendment

  • In 2017, amendments to the Pension Funds Act (1956) will be considered to introduce the concept of an umbrella fund, and to clarify the extent, purpose and interpretation of the powers of the Registrar of Retirement Funds to deal with funds that do not have properly constituted boards
  • The National Treasury will also engage with the Financial Services Board to find a sustainable policy solution to the challenge of unclaimed benefits

Annuitisation for provident fund members:

  • The Revenue Laws Amendment Act (2016) postponed the annuitisation of retirement benefits for provident funds to 1 March 2018 to allow for further consultation with the National Economic Development and Labour Council (NEDLAC) and others on retirement reforms

  • Should no agreement on annuitisation be reached, the government will review the continuation of the tax deduction for funds that do not annuitise part of their retirement savings, to ensure the tax system is equitable across all retirement funds

  • The National Treasury will also engage with the industry to provide appropriate annuity products that take better account of the needs of low and middle income members of retirement funds

Automatic enrolment in retirement funds:

  • South Africa has a well-developed occupational pension system, but there is limited coverage and a large number of funds. In November 2016, government tabled a discussion paper on social security reform at NEDLAC. While NEDLAC engagement is expected to take some me to conclude, a parallel process is expected to consider more urgent retirement reforms that can be implemented, eg government is considering automatic enrolment to ensure more workers save for their retirement. This initiative would encourage or require employers to automatically enrol their workers into a retirement fund, which could be sponsored by the employer or sourced from a third party

Application of the cap on deductible retirement fund contributions:

  • There is uncertainty about how the overall annual cap of R350 000 on contributions to pension, provident and retirement annuity funds should be applied when determining monthly employees' tax. It is proposed that the amount of R350 000 be spread over the tax year


Budget 201718 Table 3

Social support:

  • State old age grants increase from R1 505 to R1 600 
  • State old age grants for over 75s increase from R1 525 to R1 620 
  • War veterans grant increases from R1 525 to R1 620 
  • Disability grants increase from R1 505 to R1 600 
  • Foster care grants increase from R890 to R920 
  • Care dependency grants increase from R1 505 to R1 600 
  • Child support grants increase from R355 to R380 

Tax thresholds:

  • Below age 65 increase from R75 000 to R75 750 
  • Age 65 to 74 increase from R11 6150 to R11 7300 
  • Age 75 and over increase from R129 850 to R131 150

Tax rebates:

  • Primary (age below 65) increase from R13 500 to R13 635
  • Secondary (age 65 and over) increase from R7 407 to R7 479
  • Tertiary (age 75 and over) increase from R2 466 to R2 493 

This article was first published in Glassock Guidelines, Edition 1. This publication does not provide advice. If you have any questions/comments on the above, please contact your consultant. 


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