T-Day is a set of legislative changes implemented through the Taxation Laws Amendment Act 23 of 2020 accepted by the President in January 2021, and due to come into effect on 1 March 2021.

Background

In 2013, National Treasury released an explanatory memorandum that accompanied the Taxation Laws Amendment Bill of 2013, National Treasury (NT) which stated:

“A strong link exists between insufficient retirement income for retired members of provident funds and the lump sum payouts made by provident funds at retirement. In short, the absence of mandatory annuitisation in provident funds means that many retirees spend their retirement assets too quickly and face the risk of outliving their retirement savings. In view of these concerns, it is government’s policy to encourage a secure post-retirement income in the form of mandatory annuitisation.”

T-Day reforms, as they were referred to, were initially intended to come into effect on 1 March 2015. However, there was an outcry from some sectors and this led to a delay in the introduction of some of the proposed changes.

From 1 March 2016, Government did however manage to introduce alignment of the tax treatment of retirement fund contribution deductibility to Pension Funds, Provident Funds and Retirement Annuities.

What T-Day changes mean to Retirement Funds and its members from 1 March 2021

• T-day rules only apply to how retirement benefits under provident funds and preservation provident funds are paid.

• Member accumulated savings prior to 1 March 2021 will still be considered “provident” whereby the full lump sum may be taken in cash on retirement (after tax). This portion will be the “Vested” fund credit.

• Member accumulated savings from 1 March 2021 will be considered “pension” whereby a maximum of a third may be taken in cash on retirement (after tax) and the remainder must be used to purchase a pension (annuity). This portion will be the “Non-Vested” fund credit.

What this actually means for members of provident and preservation provident funds

Watch our videos to understand how your retirement benefit will be impacted by these changes:

Please feel free to contact us with any queries.