Recent tax law amendments proposed by National Treasury clearly signal that the South African Revenue Service (SARS) is eyeing retirement funds as possible low-hanging fruit to boost revenue collection and strengthen the fiscus.

While the proposed changes are currently limited in scope and still need to follow the legislative process, the policy direction suggests that retirement funding as a whole may be on SARS’s radar. Employee benefit specialists and tax experts warn that such a major shift cannot be ignored, as it could upend years of meticulous retirement planning and potentially erode your hard-earned nest egg.

They argue that government should not impose a different tax treatment on retirement funding, as individuals who made prudent decisions under one set of tax rules years ago, could suddenly be saddled with unexpected tax liabilities that were never factored into their original strategy for a secure retirement.

Unless action is taken, many may feel a real-world economic impact, with less rands and cents in their pockets. People could find themselves with reduced retirement income, not because of poor planning, but because the rules changed after the fact. 

Are Foreign Pensions Just the Beginning?

The current proposal on the table seeks to scrap the long-standing tax exemption on foreign retirement funds received by, or accrued to, a South African tax resident from past employment abroad. Although the future of specifically foreign pension funds will still be debated in Parliament, if adopted, the change will take effect on 1 March 2026.

Considering this, it is especially urgent for South Africans living abroad, expatriates who have returned home and foreign nationals settled in South Africa with offshore pensions to re-evaluate their retirement strategy as this development could fundamentally change their financial outlook in retirement.

Today it is foreign pensions. Could local retirement annuities, pension funds, or preservation funds be next?

Remember the Controversial ‘Prescribed Assets’ Debate 

The policy direction evokes memories of the prescribed assets controversy that surfaced a few years ago. Reintroduced in the ANC’s 2019 election manifesto, the proposal aimed to instruct institutional investors, including pension funds, to invest set portions of their money in government-specified projects and state-owned enterprises (SOEs).  

At the time, many feared the misallocation of capital and the long-term erosion of pensioners’ wealth. Ultimately, the idea did not translate into formal policy, but it has made individuals wary of any proposals to tinker with pension funds.

Review Your Retirement Plan Before the Taxman Has the Final Say

Yes, nothing is final yet, but the indications are that your pension savings may not be as untouchable as you think.

A wait-and-see approach is simply too risky. Every delay may chip away at your financial future and retirement security. 

Before the rules change, and before the taxman has the final say, now is the time to take stock, seek expert advice, and ensure your retirement plan is protected and structured in a tax efficient way.

Written by Africorp Advisory Services