A legislative proposal which was recently issued by the Ministry of Finance suggests the establishment of a new saving arrangement for companies managing provident funds, to be called 'provident funds for investment'. This savings fund will allow the withdrawal of amounts of savings at any time, in a manner similar to savings at a bank, which is not necessarily connected with deductions from salary and therefore which does not carry with it an exemption from income tax on the sum so deducted. The provident fund for investment will carry an exemption from capital gains tax (15%) should the beneficiary decide to receive such funds as a monthly payment as from retirement age (rather than receiving them as a one off lump sum payment). The aim of the new law is to encourage savings' channels, additional to pension funds via the work place.
By contrast with regular pension funds, a monetary pledge over the monies of the provident funds for savings will be allowed. This will be similar to the existing situation concerning liquid funds in annuity pension funds and education funds. Thus the proposal suggests adding a provision concerning attachments of rights of the beneficiary in the regular pension provident funds, which will bring about a different balance from the current one between the beneficiaries and their creditors.
The legislature is suggesting regulation of the subject of money attachments over provident funds, after years of this issue being conditional upon regulations which have not yet been adopted. The aim of the regulation proposed is to create a balance between the need to protect the pension monies deposited and between the rights of the creditors. Accordingly, the provisions of Section 25A of the proposed legislation provide that monies of a beneficiary in a provident fund will be available for attachment except: monies from the compensation component, for so long as the beneficiary is not entitled to receive such monies; monies of a deceased beneficiary; monies of a beneficiary in provident fund for sick pay; the accumulated amount in a central provident fund for annuity; the accumulated amount in a central provident fund for participation in an annuity pension.
It is proposed to provide that monies which are withdrawn for realization of an attachment in accordance with that Section, will be regarded as if they were withdrawn by the beneficiary. This provision has considerable importance, inter alia, with respect to the tax dues on the monies withdrawn. In a manner similar to that in case of the withdrawal of the balance of the annuity in the account by the beneficiary, the withdrawal of monies by the party in favour of whom the attachment was given before the beneficiary started to receive the annuity in an amount higher than the minimum amount of the allowance, will be a withdrawal which is not according to the provisions of Section 23 of the Provident Fund Law. Accordingly, according to the Income Tax Ordinance, this will be a withdrawal which attaches a tax duty of 35% or the marginal tax, whichever is the higher, of the amount so withdrawn. In addition, the realization of the attachment in the manner of capitalization of the pension will be subject to tax, according to the Income Tax Ordinance, as if the capitalization of the pension had been carried out by the beneficiary.
According to the proposal, the Minister of Finance will set rules for the attachment procedure over monies in the provident pension funds and for the withdrawal of monies in order to realize the monetary attachment.
Reference: A Law to Amend the Law on the Supervision over Financial Services (Provident Funds) (Amendment No. ___), 5776-2016 of 27.1.2016.