Annuitisation of provident funds finally commences

​From 1 March 2021, members of provident funds on retirement will have to buy an annuity with two-thirds of their retirement funding, bringing them in line with pension and RA fund members

The mandatory annuitisation of provident funds, which was first proposed in 2013 in the Taxation Laws Amendment Bill, 2013 (2013 Bill), finally became a reality from 1 March 2021 after an historic agreement with all NEDLAC constituencies.

Previously, only pension fund and retirement annuity fund members were required to annuitise two-thirds of their retirement interest upon retirement. This applied unless a member's interest in a retirement fund was less than ZAR 247 500, where the full amount could be withdrawn as a lump sum on retirement.

The explanatory memorandum that accompanied the 2013 Bill suggested that a "strong link" existed between the inadequate retirement funds held by members of provident funds after their retirement and lump sum pay-outs to provident members on retirement.

The purpose of the change was to ensure provident fund members had a secure source of income during retirement and ensure that retirement interests were not depleted too quickly. Significantly, it was also to harmonise the treatment of the three different forms of retirement funds in South Africa, namely pension funds, provident funds and retirement annuity funds.

Labour unions initially challenged the proposed compulsory annuitisation of provident funds. It was also later noted, during the Standing and Select Committees on Finance's discussion on the Revenue Laws Amendment Bill, 2016, that a misconception arose that the proposal to annuitise provident funds was an attempt by the government to nationalise provident funds.

Consequently, the implementation of the mandatory annuitisation of two-thirds of provident fund pay-outs on retirement was postponed multiple times, until it was finally announced in Parliament in 2020 that the change would be effective from 1 March 2021. This was confirmed by Finance Minister Tito Mboweni during the 2021 Budget Speech.


With effect from 1 March 2021, and subject to certain conditions and provisos, no more than one-third of the total value of a member's interest in a provident fund may be commuted for a single, lump sum payment and the remainder must be annuitised.

This general rule will not apply where two-thirds of the total value of a member's interest does not exceed ZAR165 000, the member is deceased or the interest is transferring to a preservation or retirement annuity fund.

The general rule is subject to several provisos, including that the interest held by provident fund and provident preservation fund members who are 55 or older on 1 March 2021 will be unaffected. Their additional contributions and fund returns will also be unaffected by the amendment.

In any other case, the interest and fund returns of members of provident funds or provident preservation funds who were members on or before 1 March 2021 will be unaffected by the change, as will additional amounts credited. Only contributions made from 1 March 2021 will be affected by the general rule.

The implementation of the mandatory annuitisation of two-thirds of provident fund pay-outs on retirement (i.e. the general rule discussed above) forms part of government's plan to ensure that provident fund and provident preservation fund members access their retirement funds sustainably and is to be welcomed. However, the significant and, in our view, unnecessary delay in its commencement means that a number of people may have withdrawn and spent their interests in full in the intervening period.


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Webber Wentzel > News > Annuitisation of provident funds finally commences
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