In March 2009, changes to the Income Tax Act allowed for the tax exemption of bulk payments from retirement funds; however, when the changes were made, some retirement funds were no longer registered. The fund administrators were unable to make payments to former members because the retirement funds were already deregistered. The settlement payments are currently still held by the respective fund administrators.

Because changes made in 2008 only provided for a tax exemption to be applied to former members of active/registered retirement funds, further changes were required to provide for tax-exempt treatment of bulk settlement payments to former members of deregistered funds.

Payments to former members of deregistered retirement funds will qualify for the tax exemption if they meet the following criteria:

• Settlement payments must relate to amounts that became due and payable by the administrator of retirement funds to the retirement funds before 1 January 2008, and;
• Such payments have not been allocated because the funds have been deregistered; and
• The administrator of the retirement funds will need to have entered into an agreement with the Financial Sector Conduct Authority (FSCA) to make such settlement payments directly to the former members of the deregistered funds.

The changes will apply to any retirement funds (pension, provident, preservation and/or retirement annuity) that were deregistered as at 2008. According to a detailed report released by the FSCA just over a month ago, a cancellations project that kicked off in 2007 resulted in the deregistration of 6,757 inactive retirement funds.

The National Treasury has stipulated that this will be the last opportunity to rectify the error. Once the outstanding bulk payments have been made, the tax exemption will be repealed. However, no deadline was included in last week’s notice. BM/DM