LEGAL NOTE JUNE 2025: NATIONAL BUDGET MAY 2025

NATIONAL BUDGET MAY 2025 – FINANCIAL SERVICES & RETIREMENT FUNDS

On 21 May 2025 Finance Minister Enoch Godongwana delivered his revised budget after further discussion amongst the participants in the Government of National Unity. 

The following sections of the budget focus on financial services and retirement funds.

Value Added Tax (VAT)

The March 2025 national budget proposal to increase the VAT rate from 15% to 15.5% effective 1 May 2025, and to further increase VAT to 16% effective 1 April 2026 has been withdrawn. The VAT rate will remain at 15%. 

Financial Sector Changes

·       South Africa has made good progress to meet the FATF requirements and hopes to exit grey listing by October 2025.

·       Analysis is underway to prepare a regulatory framework for crypto asset transactions.

·       A market study on the use and adoption of artificial intelligence in the financial sector will be released.

·       Key financial institutions will be encouraged to adopt the South African Green Finance Taxonomy.

·       Discussions will start on allowing access to the retirement pot on retrenchment subject to strict conditions.

·       A framework to manage unclaimed assets will be released in 2025.

·       National Treasury will develop a national strategy on financial inclusion in 2025.

·       The COFI Bill is being prepared for Cabinet approval before tabling at parliament.

 Retirement Funds

The retirement tax tables remain unchanged. There are however some proposed changes to the tax legislation, and handling of the savings component upon the death of a member. 

Two-pot system

Government has received requests to allow access to the retirement pot on retrenchment. Discussions will start on measures that may allow access to the retirement component if a member is retrenched and in financial distress. Strict conditions will apply to any access, including proof that the member has no alternative source of income after a period of time, such as payments from the UIF, and limiting access to a percentage of income rather than a cash lump sum. National Treasury will engage stakeholders, including labour and industry, once the research is concluded.

Unclaimed assets

National Treasury and the FSCA, in consultation with industry, will develop recommendations on a framework to manage unclaimed assets and the establishment of a central unclaimed assets fund.

Conduct of Financial Institutions Bill (‘COFI Bill’)

The final COFI Bill is being reviewed by the Chief State Law Advisor and after that it will be submitted to Cabinet for approval to be tabled in parliament.

The FSCA will set out in more detail the implementation of the COFI Bill in its 2025 three-year regulation plan.

Tax proposals

Tax legislation will be amended to include any amounts assigned to the non-member spouse in respect of a divorce in compliance with the tenets of a religion.

National Treasury has proposed changes to the rules that currently exempt lump sums, pensions and annuities received by South African residents from foreign retirement funds for previous employment outside South Africa, in order to limit double non-taxation.

Clarifying payment of death benefits       

It is noted, that in terms of the Revenue Laws Second Amendment Act (2024), the definition of “savings component” only makes provision for the treatment of the balance in the savings component on retirement. 

There is no provision for the treatment of the savings component upon death.  As a result, any value in the savings component is payable as a savings withdrawal benefit on death.   

It is proposed that an amendment be made to clarify that on the death of a member, where the beneficiaries choose to receive any part of the savings component in cash, it will be taxed in accordance with the retirement tax table, and not as a savings withdrawal benefit. This change has been included in the revised Revenue Laws Second Amendment Bill 2025, which was released with the budget on 12 March 2025.