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It must be noted that paragraph (b) of the definition of “defined contribution component” in paragraph 12D(1) of the Seventh Schedule to the Act would include a benefit or part of a benefit receivable from a pension fund, provident fund, or retirement annuity fund that consists of a risk benefit provided by the fund, directly or indirectly, for the benefit of a member of the fund, if the risk benefit is provided solely by means of an insurance policy.
It has come to attention of Government legislators that an anomaly arises in instances where a retirement fund provides both a retirement benefit in relation to the “defined contribution component” and a self-insured risk benefit. The current wording of the Act would result in the classification of the total contribution to the said fund as a defined benefit component, subject to valuation in terms of the formula contained in paragraph 12D(3) of the Seventh Schedule to the Act, as well as the issuance of a contribution certificate. This is due to the fact that self-insured risk benefits are not considered a defined contribution component.
To address this anomaly, it is proposed that changes be made in the legislation so that self-insured risk benefits are classified as a “defined contribution component”. This would ensure that retirement funds that provide both defined contribution component retirement benefits and self-insured risk benefits can account for the fringe benefit based on the actual contribution. As a result, the value of the risk premiums under self-insured risk benefits will be determined based on the cost to the employer (i.e. the actual contribution made by the employer).
The proposed amendment will come into operation on 1 March 2022 and apply in respect of years of assessment commencing on or after that date.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)