Budget Review 2023 – Chapter 4 ‘Statements of Intention’
PAGSA Newsflash 2023-11 explained the annual legislation amendment cycle and discussed the proposals that were issued in Annexure C of Budget 2023. The intention to make significant changes to the legislation and to administration requirements are stated in Chapter 4 of the Budget and are included verbatim below for discussion. Budget 2023 Intention: Two-pot retirement system
The intention behind the introduction the ‘two-pot’ retirement system and its postponement to 1 March 2024, is stated in Chapter 4 of the Budget as follows. Following extensive public consultation, the first phase of legislative amendments to the retirement system is due to take effect on 1 March 2024. The intent of these amendments is to enable pre-retirement access to a portion of one’s retirement assets, while preserving the remainder for retirement. Retirement fund contributions will remain deductible up to R350 000 per year or 27.5 per cent of taxable income per year – whichever is lower. Permissible withdrawals from funds accrued before 1 March 2024 will be taxed according to the lump sum tables. Withdrawals from the “savings pot” before retirement will be taxed at marginal rates. On retirement, any remaining amounts in the savings pot will be taxed according to the retirement lump sum table (for example, R550 000 is a tax-free lump sum on retirement). Four areas required additional work: a proposal for seed capital, legislative mechanisms to include defined benefit funds in an equitable manner, legacy retirement annuity funds and withdrawals from the retirement portion if one is retrenched and has no alternative source of income. The first three matters will be clarified in forthcoming draft legislation. The final matter will be reviewed as a second phase of implementation. PAGSA Comments
The purpose of the ‘two-pot’ retirement system is to improve pre-retirement preservation of the retirement interest and was proposed to be made effective from 1 March 2023. The requirements of the ‘two-pot’ system impact more on retirement fund employers than on commercial employers, requiring significant changes to their systems but equally importantly, to their infrastructure and internal procedures. It was also discovered during the 2022 amendment cycle that there are four areas of related legislation that need to be addressed (see above). For all these reasons, the two-pot system has been postponed to 1 March 2024 to allow the additional changes to the legislation to be made, and to give retirement fund administrators more time to prepare their organisations. Budget 2023 Intention: Broadening the personal income tax base. The intention to broaden the personal income tax base is stated in Chapter 4 of the Budget as follows. As part of exploring the effect of remote work on the personal income tax regime, the National Treasury and SARS committed to a multi-year review of allowances. A discussion document will be released this year to outline workplace practices and policies, changes in the current environment and how different workplaces are affected by home office and travel allowance policies. PAGSA Comments
The intention stated in Budget 2023 to investigate home office allowances, and in particular travel allowances, with a view to changing their requirements is a welcome and positive step forward. For many years the PAGSA has submitted requests to National Treasury to investigate and make changes to travel allowances (we have also submitted suggested changes), and in 2020, because of the Covid lockdowns and the subsequent spotlight on ‘working from home’, we also requested changes to home office allowances. Our requests surfaced for the first time in the 2021 Budget that spoke to a “multi-year” intention to review travel and home office allowances, but as far as can be determined, the investigation was not started. The fact that the 2021 Budget proposal has been included again in Budget 2023 signals intention. Non-compliance, whether deliberate or inadvertent, is high.