Retirement reforms only hold benefits

DESPITE the fears and misrepresentations relating to government’s retirement reforms, financial expert MARK BOTES argues that the new legislation will help the populace to take charge of their financial destinies

There has been much said and written regarding the retirement reform steps announced by Treasury over the last few years and it seems as if there is a lot of misunderstanding regarding these changes legislated by both Houses of Parliament via the Taxation Laws Amendment Bill 2015.

The Bill as proposed and passed was to mainly change the way pension, provident and retirement annuity funds were treated at different life stages.

Essentially we make contributions to these funds for old age, when we no longer work and earn an income from an employer.

Thus retirement funds will be aligned to bring these funds in line with each other.

The idea of ‘annuitisation’ or converting your retirement savings into a stream of future income is what we will have going forward.

How many times have you heard of someone that has used their pension or provident fund money to settle debt or start a new business?

From 1 March, provident fund members, like retirement annuity and pension fund members, will only be able to receive one third of their retirement savings in cash and the balance will have to be placed in an annuity to provide an income for future needs.

The one very important point here is that the vested rights up to 1 March 2016 will still fall under the previous rules for retirement funds, thus existing provident fund members will still be able to access their accumulated capital up to 29 February this year under the old legislation.

After 1 March all contributions fall under new legislation.

If a provident fund member is 55 or older on this date, the new legislation will not apply. Any accumulated retirement savings as at 1 March, as well as new contributions and growth after 1 March, can still be taken as a cash lump sum at retirement.

Members with a retirement benefit at retirement of less than or equal to R247 500 will be allowed to withdraw the entire amount without the need to purchase an annuity, as of 1 March. The current value is R75 000.

After March

Tax deductions from contributions to retirement will increase to 27.5% of the greater of taxable income or employment income, but with a limit of R350 000 per annum. Employer contributions to occupational pension and provident funds will be included in the gross income of employees as a fringe benefit.

This means that employees will be able to treat these contributions as if they made it themselves and include this in their tax deductions.

Help yourself

It is safe to say that South Africans in general do not save enough.

We just need to see the high amount of government grants that are given out every month to understand that individuals have not saved enough.

A disciplined attitude toward savings will be your ‘save and grace’ in old age the sooner you start to save money.

Attitudes toward employers who provide retirement benefits to staff should be welcomed and praised because this leads to a self-sustaining population.

Take charge of your financial destiny.

• Mark Botes is the Director and Registered Financial Planner at Point 3 Financial Solutions (Pty) Ltd