ATC160316: Report of the Select Committee on Finance on the Revenue Laws Amendment Bill [B4B - 2016] (National Assembly- section 77), dated 16 March 2016
Report of the Select Committee on Finance on the Revenue Laws Amendment Bill [B4B - 2016] (National Assembly- section 77), dated 16 March 2016.
1.1 The Revenue Laws Amendment Bill [B4 - 2016] was introduced by the Minister of Finance on 24 February 2016. The Bill is a money Bill as contemplated in section 77 of the Constitution. The purpose of the Bill is to postpone certain provisions in respect of the annuitisation of retirement benefits for provident funds and to correct provisions dealing with the calculation of deductions in respect of contributions to defined benefit retirement funds.
2. Public involvement
2.1 The Select Committee on Finance and the Standing Committee on Finance held public hearings on 3 March 2016. Written submissions were received from the following:
• Association of Savings and Investment SA (ASISA)
• Bowman Gilfillan
• Mr. A Crawford
• Business Unity South Africa (BUSA)
2.2 Oral submissions were received from the following:
3. Committees’ observations and deliberations
3.1 The harmonisation of pension funds, retirement annuities and provident funds is necessary to ensure equal and fair treatment in respect of taxation and access to benefits at retirement. The concern raised by the labour unions is on the requirement of members of provident funds to annuitise two-thirds of their retirement benefits. However, this process has to take account of the lower life expectancy of low income workers compared to other income strata; and that annuitisation could prevent workers from bequeathing to their beneficiaries effectively. It is therefore imperative that a holistic approach is taken in respect of retirement funding reform, including meaningful consultation with all stakeholders.
3.2 The Committee endeavoured to secure a compromise between the concerns from organised labour who maintain that the piecemeal reform process is detrimental to their members and wanted a removal of the clauses referring to annuitisation altogether; and National Treasury’s position that the annuitisation provisions be deferred for 2 years.
The Committee also took into account the needs of the industry for certainty in the reform process, which impacts on investment in systems to comply with the legislation. The outcome is a form of “conditional deferment” – the deferment is agreed to but there are conditions requiring National Treasury to concertedly negotiate with organised labour and other relevant parties over the next two years to seek a consensus on the contested provisions.
3.3 Furthermore, retirement funding reform must also take into account that the design of annuitisation by provident funds must not undermine the current accepted (and recommended) practices in the rest of the retirement industry, particular for pension funds and retirement annuities. In this regard the scope for the practice of taking advantage of the differences in tax and annuitisation benefits between pension funds, retirement annuities and provident funds by transferring funds between these must be reduced.
3.4 Pursuant to the above, both National Treasury and COSATU agree to further constructive engagements. National Treasury further commits to engage with other stakeholders who are not part of Nedlac.
4.1 The Committee therefore recommends that:
a) The comprehensive social security reforms paper shall be tabled at the National Economic Development Labour Council (NEDLAC) established in terms of the National Economic Development and Labour Council Act, 1994 (Act 35 of 1994) for consideration within 3 months of the promulgation of the Bill.
b) Issues for deliberations in NEDLAC will include:
• The appropriate package of government social security measures; and
• Retirement fund reforms.
c) National Treasury must report on progress on negotiations to the Committee every quarter.
d) The Minister of Finance must submit written reports every six months to Parliament regarding the progress on the consultations at NEDLAC. The Minister must submit the first report to Parliament before 15 December 2016; and, provide a second report by 15 June 2017.
e) All participants in the process at NEDLAC commit to actively participate in the deliberations.
f) Should annuitisation be scrapped altogether the tax deductions for provident fund members will cease.
g) Notwithstanding the consultations taking place at NEDLAC, the Minister shall provide all persons the opportunity to make representations on the issues being deliberated at NEDLAC.
h) The National Treasury should also engage stakeholders that are not represented at NEDLAC.
The Select Committee on Finance, having considered and examined the Revenue Laws Amendment Bill [B4B - 2016] (National Assembly- section 77), referred to it, and classified by the JTM as a section 77 Bill, reports the Bill without amendments.
The Democratic Alliance (DA) reserves its position on this report.
Report to be considered.
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