South African Unions Object to Changes to Pension Fund Taxes

  • Workers to be discouraged from cashing in retirement policies
  • Spat over laws may backfire on ruling ANC in local elections

South Africa’s adoption of new tax laws that seek to discourage workers from cashing in their pension funds when they resign or retire has pitted the government against its labor union allies.

The legislation will standardize the tax treatment of all retirement funds, limiting tax-free withdrawals. President Jacob Zuma has signed off on the changes, which will come into effect on March 1, the National Treasury said in a statement on its website on Wednesday.

“The government has taken upon itself how workers should spend their savings or pensions, which are deferred salaries, and this is unacceptable,” Sizwe Pamla, a spokesman for the Congress of South African Trade Unions, said by phone. “Most workers depend on a lump sum tax-free payout if they leave employment, especially those that get retrenched, to pay off debts such as housing loans.”

Cosatu is the country’s biggest labor group and a member of the country’s ruling coalition. The unionists’ objections to the new law may undermine their support for the ruling African National Congress in municipal elections, which are due to be held between May and August.

“This is an outrageous and blatant act of provocation by the ANC-led government that will have dire and lasting consequences on the relationship between government and the workers,” Cosatu said by e-mail. “Workers will fight any attempts to impose the compulsory preservation of our hard-earned deferred wages.”

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