Draft legislation to set up a special national fund for unclaimed retirement fund benefits is likely to be moved higher up the agenda after the surprise move by the South African Revenue Service (SARS) to claim R500 million in taxes from the outstanding payments to missing retirement fund members.
Dube Tshidi, the deputy chief executive in charge of pension funds at the Financial Services Board (FSB), says the National Treasury initially wanted to delay the draft legislation and include it in a new Pension Funds Act, which is currently being drafted by the FSB.
Tshidi says the new Pension Funds' Bill will follow after the discussions on general principles are completed.
The principles would be discussed with the industry before the new Bill is drafted.
The initial delay in the draft legislation on unclaimed benefits did not stop SARS from stepping in and demanding a R500 million slice of the unclaimed retirement benefit cake, which is estimated to be more than R5 billion.
The move by SARS took the retirement industry by surprise as it was expecting that the issue of tax on unclaimed benefits would be left until the legislation was finalised.
Although the Institute of Retirement Funds (IRF) is concerned about the speed at which SARS has moved, it says that SARS is entitled to the tax.
Anesh Soonder, the chief executive of the IRF, warned that people who have left benefits unclaimed in the hope of deferring tax should urgently claim any outstanding benefits as they could find themselves taxed at a higher rate than they would otherwise have been taxed. SARS has set the tax at 30 percent based on an average of the average rate of taxation, however, there is some scope for a lower rate to be applied where the bulk of affected members are lower-income earners.
SARS' argument is that the benefits have accrued to members and that tax is due, whether the benefits have actually been paid out or not.
However many people may find when they eventually claim their benefits that too much tax has been deducted as when you take the funds, they are only taxed after an initial tax-free amount has been deducted, and then only at your beneficial average rate of tax.
Some people in low-income brackets may not even have to pay tax.
However fund members on higher tax rates may have to pay in.
Vlok Symington, the manager of employment income at SARS, says SARS has no desire to take more than its due, and will make adjustments when benefits are claimed.
The full extent of the taxable unclaimed benefits is not yet known. SARS has written to all pension fund administrators, including self-administered funds, for details of unclaimed benefits.
Genuine deferred benefits left in retirement funds by people who have moved to other jobs, or benefits in the process of being distributed, are not subject to the tax.
The draft legislation is aimed at establishing a separate retirement fund vehicle for unclaimed benefits that will fall under the jurisdiction of the FSB but will have its own set of trustees.
At the moment there is confusion over the treatment of unclaimed benefits. Many retirement funds have rules which allow the unclaimed benefits to be paid into the fund's general coffers after three to five years, and then to be distributed among remaining members.
SARS is also seeking to tax any unclaimed benefits that have reverted to a retirement fund.
In terms of the draft legislation, funds will be required to consider a benefit as unclaimed after 24 months.
No benefit will be permitted to prescribe or revert to a fund. Within six months of a fund's financial year-end, following the 24 months, the benefit must be transferred to a new national fund for unclaimed benefits. The provisions will also be applied to death and liquidation benefits currently payable to the Guardian's Fund.
The unclaimed benefits will be held against future claims in the fund for 30 years, after which they will be used for the benefit of the retirement fund industry, and for no other purpose.
Uses could include helping to fund the office of the Pension Funds Adjudicator; to pay for retirement fund trustee training; and to pay for education programmes for retirement fund members.
If you believe you may be entitled to retirement fund benefits, you should contact the principal officer or administrator of your fund.
If you do not know the details of the fund, which you believe holds benefits to which you are entitled, you can contact the Financial Services Board (FSB) at 0800 110 443.
If the retirement fund refuses to assist you, you can complain to the FSB.