South Africa’s cabinet said on Thursday that it has delayed a controversial tax law after the nation’s biggest union federation threatened to strike over a clause preventing workers from withdrawing their entire pension when they retire.
Implementation of the law will be delayed by two years to March 1, 2018, Jeff Radebe, minister in the presidency, told reporters. The new law was due to take effect on March 1 this year.
The law was meant to ensure workers leaving employment do not use up all their pension and then fall back on state welfare. The struggling economy has already been battered by the commodities slowdown, a major drought and is now threatened by ratings downgrades to “junk” status.
Trade union federation Congress of South African Trade Unions (Cosatu), allied to the ruling African National Congress (ANC) party, and the Association of Mineworkers and Construction Union have issued notices to strike over the new tax law.
“It is apparent that despite the extensive consultation processes which were embarked upon before the law was passed, that those concerns still exist and that those concerns have to be addressed urgently,” Radebe said.
Under the new law, supported by National Treasury, provident fund members would only be allowed to take one third of their benefits in a lump sum on retirement. Currently, members are allowed to withdraw their entire savings.
The remaining two thirds would have to be used to purchase annuities, the new law said.
However, Cosatu said the planned strike would go ahead because the law should be scrapped, not just postponed. It gives government the right “to dictate to workers how and when they should access and spend their deferred salaries in the form of pensions,” the union said.
“The fact that they have postponed is a step in the right direction, it is acceptable, but we don’t think it is enough,” Sizwe Pamla, Cosatu’s national spokesman said, adding “the strike is definitely continuing”.
President Jacob Zuma and the ANC need Cosatu’s support in municipal elections later this year, but the union said it would consider withdrawing from its alliance with the ruling party over the law.