Pension loophole for politicians

Politicians’ pension fund rules may be changed so they aren’t hit by the new fringe benefit taxes that they themselves voted in.

Johannesburg - Politicians’ pension fund rules may be changed so they aren’t hit by the new fringe benefit taxes of up to R22 000 a month that they themselves voted in.

The Taxation Laws Amendment Act 2015 was passed by Parliament at the end of last year and changes the tax regime for retirement funds as of yesterday, including making substantial pension contributions from employers' taxable as fringe benefits. Pension contributions of over R350 000 a year or 27.5 percent of salary are now taxable.

A memo to President Jacob Zuma from Judge Cagney Musi, the chairman of the Independent Commission for the Remuneration of Public Office Bearers, sets out the problem and recommends changes to the Political Office Bearers Pension Fund so politicians can avoid the extra costs.

This is the pension fund used by MPs, MPLs, premiers, MECs, cabinet ministers and the president.

Judge Musi said the effect of the change in law would be significant and “estimated to be between R1 200 and R22 000 per month, depending on the level of remuneration of the member”.

This is the amount of extra tax that the politicians could have to pay from this month.

This is because the politicians contribute 7 percent of their salaries towards their pensions and the government contributes a massive 53 percent, to help anti-apartheid activists make up their pensions.

“The commissioners were deeply divided. There were some who held the view that it is unfair and immoral to enact a law and subsequently or simultaneously exempt the lawmakers from its negative effects,” said Judge Musi’s memo.

“They felt that the commission was, in effect, requested by the honourable minister of finance to start the process of giving immunity to political office bearers against the negative effects of the Amendment Act.”

However, the majority of the commissioners resolved to recommend that the rules of the pension fund be changed, “in order that members are not severely prejudiced by these changes”.

The proposed changes are that the government reduces its contributions to the pension fund, and instead provides a one-off payment or gratuity to retiring politicians.

Last night, commissioner Costa Economou of the remuneration commission said the intention was to mitigate the effect of the tax on the fund members. He pointed out that big corporates could make similar arrangements to help their employees avoid the fringe tax problem.

Economou said the state’s contribution to the politicians’ pensions, plus some other extras, comes to the equivalent of about 63 percent of the salaries, but this is not included in the gazetted details of the politicians’ salaries issued by the commission.

If a politician’s salary is listed in the gazetted remuneration schedule as R1 million, the total cost to the government is R1.63m.

louise.flanagan@inl.co.za

The Star