Revenue Laws Amendment Bill & Pension Funds Amendment Bill: public hearings

Meeting report

Congress of South African Trade Unions submission: Revenue Laws Amendment Bill & Pension Funds Amendment Bill

Mr Matthew Parks, Parliamentary Coordinator, Congress of South African Trade Unions (COSATU), stated that COSATU welcomed the Revenue Laws Amendment Bill [B39B-2023] (the RLA Bill) and the Pension Funds Amendment Bill [B3-2024] and looked forward to their implementation on 1 September 2024.

COSATU was particularly excited to know that workers would be allowed access to their savings without having to resign or cash out their entire pension funds, that workers who were retrenched would be able to access their full savings, and that immediate relief would be available of 10% up to R30 000.00 from existing savings when the system came into effect, amongst other changes stipulated in the RLA Bill.

If the Pension Funds Amendment Bill was not corrected during this term by Parliament, it would see millions of highly indebted workers unintentionally excluded from Two Pot Pension Relief and it would push thousands of indebted workers into opting to resign from their jobs and cash out their entire pension funds out of despair and desperation. Therefore, there was no time left for delays in processing these important bills when millions of workers were looking to COSATU and government to provide meaningful relief & pension reform.

(See attached submission for further information)

Discussion

Mr D Ryder (DA, Gauteng) appreciated the presentation. I will use this opportunity again to voice my displeasure at the lack of participation in the public participation process. This two pot retirement system was initially designed to respond to COVID when we lost 2 million jobs in South Africa. And the fact is that people were not going to be able to make it to use their pension funds, because they couldn't afford to put food on their tables. So, I think the fact that we are only processing the Bill now is perhaps a bit of an indictment on our legislative processes. But, you know, that's why we reflect on it and talk about it, to move forward.

I do think that the outcry from big business, in the media, and so on, about the fact that, you know, this thing has been landed on them, and I haven't had enough time to process. I think that they are quite correct to say that, you know, there are other consequential legislative amendments which are required to give this Bill effect. But realistically, they shouldn't be telling us that as Parliament. Big business needs to engage with us as parliamentarians to also empower us to do our work so that we can understand things from their perspective as well. And it's no point to criticise MPs for not understanding the intricacies of the insurance environment. It is a pity for me that we have COSATU presenting and nobody else. And it is a sad indictment on big business and organised business in the country. And I do think that we could have had a much richer engagement, a much deeper engagement, which would have taken us into a better position so that this law could have been implemented effectively and to the benefit of all. We are taking shots at each other in the media and I don't think that's constructive.

Chairperson: I'm not happy either. You know, finally, it reflects on the Chairperson of the Committee, when you have poor public participation. Maybe they think it's not worth coming. Probably it's also scepticism about willingness and preparedness to make changes, especially on the eve of an election. But I don't think there were many submissions on the National Assembly (NA) side, either.

It seems to me that this Bill is slightly more acceptable than the one that's currently before the NA on the Pension Fund Amendment. It's on that one that public hearings were tougher. And people are more critical than I remember through the media and from what we heard about this Bill through the process. And I entirely agree that this thing of business engaging with the executive only in cosy chat rooms or whatever without appearing before the Committee. Is it because they already appeared before the NA?

But we're not taking any policy positions unless we hear fully from National Treasury.

Response

Mr Parks: to be fair to Members of Parliament, we do see value in the public participation processes. If we looked at the previous Parliament and in the finance committees, there was a lot of good discussion we had gotten across party lines, whether it's on the sugar tax, the carbon tax, paternity leave. We know it's not a sprint; it's a marathon. We do what we can to assist. But we do share Members' frustrations. We've seen the dangers of rushing and unintended consequences in these present bills. But yes, we would have loved it to have been a bit further, faster. We appreciate the huge pressure that Members of Parliament, especially in the NCOP, to get so many things done before rising.

Regarding business complaints, we were a little bit anxious about the pension funds but we got a bit of comfort when Alexander Forbes and Sanlam publicly said they support these reforms. I think it's a fair balance. It addresses the current inflexibility of the law, the current challenges workers face and the impact. To be fair to Parliament, this is a matter Parliament's probably had about a dozen hearings on since 2020. So it's not a new matter. This is workers’ monies. This is a fair compromise. It's a win-win compromise, which will assist industry. But also it gives relief to workers. It's a win-win compromise. We’ve had good consensus and support, but that doesn't mean we've gotten everything we wanted at times. There are things were not happy with the Treasury, but we've all agreed ultimately. At some stage, you need to make compromises. At some stage, you have to accept and move on. But I think on the main fundamental issues has been consensus on a whole. But I think the bottom line is let's make sure both bills are passed before Parliament rises, because without that, then September this year is gone. And then that would be a devastating blow to workers. From our side, whatever issues are raised can be addressed.

National Treasury presentation

Mr Nhlanhla Radebe, Director: Business Financial and International Tax, National Treasury, noted that National Treasury had accepted the need to simplify the directives system for both administrators and the South African Revenue Service (SARS) to cater for speedy implementation of this reform and had made changes to the RLA Bill that had been published on 21 February 2024 to improve the wording thereof.

An issue not included in the RLA Bill was that further engagements on other matters needed to commence once the two-pot system had been implemented to discuss other matters, such as retrenchments, dismissals and resignations, and affordable home and educational loans that workers could take from their pension funds. National Treasury and SARS would revisit these issues once all of the changes to the two-pot system had been implemented.

(See attached presentation for further information)

Discussion

The Chairperson asked if Mr Radebe was saying that every amendment ASISA proposed had already been addressed. If those proposals had been addressed, why was ASISA making their submission again?

Response

Mr Radebe said National Treasury noted the comments about dismissals and retrenchments from COSATU and stated that they would make engagements at a later stage. ASISA submissions had been looked at and almost all of them related to drafting and the changes had been made and published in the 2024 draft of the RLA Bill.

Follow-up questions

The Chairperson said that he did not understand why the Committee had to go through ASISA’s submission if their submission had been adopted. He also asked what the tax would be on the relief fund of 10% up to R30 000.00.

Response by the Association for Savings and Investment South Africa

Ms Adri Messerschmidt, Senior Policy Advisor: Regulatory Affairs, ASISA: it was very difficult for us to decide how to position our comments. We made the submission in November last year to Treasury already. But it is a difficult situation because there's already a new draft bill that would fix the technical errors in the Bill that is currently in Parliament. So it is an unusual process for us. That is why we decided to approach it as we did, because the deadline for comments on the 2024 draft is on 28 March. And we're in the middle of putting together our comments on that. That is the reason why we didn't make a verbal presentation but just sent you our comments. We have discussed it with Treasury and we are busy analysing in November last year already, but we're busy analysing the new draft bill to see how it's been incorporated.

Chairperson: Okay, can you answer a specific question? Those amendments that are before us right, I was going to plough through them over the weekend. I'm very glad you're here. Because I really would have got very frustrated, given all the pressures, to read something that's already outdated. So in other words, what is the point? What in your current submissions would you like the NCOP Select Committee on Finance to consider to amend the Bill as it is before us right now?

Ms Messerschmidt: As I said, we are in the process of analysing and we should have a good idea about Tuesday whether there are still remaining concerns. It seems as if most or if not the majority, by far the majority, could be addressed but it's just the timing was very difficult between the NCOP hearings and looking at the 2024 bill to see what has been dealt with or not. So we have a draft submission ready but we haven't completed it yet. It's just the timing is very tight.

Chairperson: Can you submit it by 3pm on Tuesday, and then appear before this Committee. If there is anything you want to raise with us that you think has not been addressed by the Bill in its present form before the NCOP. That's fair. Asisa is highly sophisticated, you aren't small, like NGO somewhere. You're a very strong organisation, but we don't buy this thing with due respect, unless you motivate.

Clause-by-clause analysis of the Revenue Laws Amendment Bill [B39B-2023]

The Committee went through the RLA Bill from Clause 1 to Clause 8.

Discussion

The Chairperson asked about the R30 000/10% and how it will be taxed.

Mr Radebe replied that it depended on the specific case which SARS would also consider using different rates and the portion.

The Chairperson said Treasury should come back with a ballpark figure after consulting with SARS. He was concerned that there was no standard percentage tax deducted and how this affected someone who is quite poor. He was concerned about how workers would understand this. Ideally, the workers should be given what they expect and then tax should be dealt with when they retire or are retrenched. He said he would think about this further. 

Mr Franz Tomasek, Head: Legislative Policy Tax, Customs and Excise, SARS, explained that when one contributed towards pension funds, they would have gotten a deduction at a marginal tax rate. A worker at the bottom end of the tax scale would have gotten an 18% tax savings when the contribution was made. When the withdrawal was made for this worker on the bottom end of the scale, the tax deduction would be 18%. If the work was on the well-off side of the scale and took the R30 000, the tax deduction would be 45%. 

The Chairperson understood that rich people should pay more tax but he was surprised that the tax was so high however he was not complaining. He found the explanation helpful.

Mr Parks said Cosatu had many discussions on the tax issues and was also worried about the value workers would receive, mindful of the incentive to save and the disincentive when withdrawing. The essence of the legislative change was moving from a flat 18% to being linked to the personal income tax rate which had pros and cons. Philosophically, one could not fault moving to a more progressive tax regime. With most workers being in the 18% bracket, if they withdraw R30 000, they would take home roughly R24 000. Cosatu has accepted that it has “lost this fight” because of the tight deadline and has accepted the cap to give workers a bit more relief against the deductions. While no one likes paying taxes, it is a necessity and needed to keep the country functioning.

Mr Ryder said it is incumbent on all role-players to educate themselves on these matters and understand the erosion of benefits later in life to achieve a short term gain and the tax cost associated with this. However, he understood the necessity of these legislative changes. One must consider the sliding scale.

The Chairperson agreed education was needed by the relevant institutions, Cosatu and National Treasury. For most, this is a dire situation and he found the tax a bit harsh. He wondered whether the tax could be deferred to when the worker retires or is retrenched. He said he would not push the matter further but would include the need for education in the Committee report.

The Chairperson asked ASISA to complete their submission on the present version of the Bill by Tuesday, 19 March by 15:00.

He said there was not much to do on the Bill. The Committee would go through the Bill again at its next meeting. He reiterated the importance of education – this would go into the report under observations and recommendations. If other parties have input or proposals, this can be submitted before the next meeting.

He asked that Members come prepared for the next meeting by going through the Bill.

The meeting was adjourned.