Abstract
Governments around the world are concerned with ensuring that individuals and members of retirement funds can retire with adequate funds. This primarily serves to lessen the burden placed on the state to provide for the needs of the elderly. The South African National Treasury included the retirement fund tax reform in its Amendment Bill of 2014 with the goal of ensuring, among other things, that members have adequate retirement assets upon retirement. This was to be accomplished by harmonising the three retirement funds, namely pension, provident and retirement annuity funds, to guarantee that their tax treatment is uniform from the time of contribution to the time of withdrawal, including the same capping limits. Along with that, a mandatory annuitisation of one-third of provident funds, similar to that of pension funds, was also introduced, which became effective from 1 March 2021. However, the new retirement tax reform still allows the retirement interest de minimis rule of R247 500, that is where a member retires from a fund and the retirement interest is R247 500 or less, the mandatory annuitisation does not apply, hence allowing a member to receive the entire retirement interest as a lump sum.
The status quo regarding the ability to make a full withdrawal for retirement interest balances not exceeding retirement interest de minimis of R247 500 presents the question of whether it is wise to maintain the ability to withdraw the whole retirement interest in one big sum of cash. One may argue that if a member only has retirement interest of R247 500 or less available in the fund, that member cannot financially afford to make a full withdrawal. The main research question is, therefore, whether there are any alternatives that can be utilised to ensure that retirement interests are preserved, rather than being withdrawn as a cash lump sum prior to or at the time of retirement.
The research was performed from a non-empirical interpretive paradigm, applying the doctrinal research methodology. In this research paper, an examination of the reasons and objectives for National Treasury still allowing the retirement interest de minimis exemption of R 247 500 was conducted. Other alternatives to the de minimis rule were explored, including a brief review of international scholarly research to see whether other countries have a strategy for their retirement fund that is similar to South Africa’s de minimis rule. It was discovered that different countries use different strategies, some of which include fines for early retirement
fund withdrawals, and others which have limited withdrawals for particular circumstances. The study found that there is potentially a local and simple solution to the retirement interest de minimis rule, which may ensure that de minimis retirement interests are preserved.