OLD MUTUAL CORPORATE WELCOMES RENEWED COMMITMENT TO ALIGN PENSION AND PROVIDENT FUNDS
South Africans urged to take advantage of tax reprieve to improve their retirement savings.
2 March 2020: The 2020/21 Budget provided a welcome surprise for embattled consumers as the Minister of Finance announced that personal income taxes would not be raised. Possibly even more valuable was the fact that Government demonstrated its willingness to do what is necessary and rein in expenses to tackle the country's growing fiscal deficit.
This is according to Malusi Ndlovu, Head of Old Mutual Corporate Consultants, who also welcomed the Minister of Finance's plan to proceed with the annuitisation of provident funds, set to take place by March 2021. "This decision to go ahead with reforms that began in 2016 but were placed on hold pending further negotiations at Nedlac underpins the State's commitment to providing adequate retirement provision to all working South Africans and addressing the potential long-term drag of ageing workers on the fiscus," says Ndlovu.
Despite the announcement during the Budget Speech of an increase in the limit on contributions to a Tax-free Savings Account from R33 000 to R36 000 per year, Ndlovu maintains that “retirement funds remain the most tax-efficient way to save for retirement with up to 27.5% of income allowed as a tax-deductible contribution, subject to an annual cap of R350 000. We hope members will take advantage of these various incentives to save more towards their retirement."
Annuitisation is the process that requires members to convert their retirement investment into a series of income payments at retirement. Ndlovu says that without the annuitisation requirementat retirement, many provident fund members could become dependent on the State or relatives in their retirement, despite having saved well throughout their working lives.
"Currently, as a result of the partial implementation of the so-called T-day reforms (Taxation Laws Amendment Act, 2015 implemented 1 March 2016), retirement proceeds from provident funds are not required to be annuitised, yet members are benefiting from the tax-deductibility of retirement contributions up to 27.5%," says Ndlovu.
"Harmonisation also paves the way for the further consolidation of funds. The differences in annuitisation previously prevented pension and provident funds from being consolidated. Their consolidation will allow for cost savings, which ultimately benefits the members of these funds," says Ndlovu.
"In our view National Treasury will need to invest in a sound communication strategy to educate members on the benefits of going forward with T-day to prevent any further delays. Private and public enterprises will also need to work together to address the misconception that resulted in many members resigning from their jobs in 2016."
On the whole, Ndlovu believes that Budget 2020/21 was positive for South Africans. "Reflecting on the various actions taken by the Minister of Finance to address the widening deficit while keeping tax rates unchanged and moving forward with the annuitisation of provident funds, Old Mutual Corporate is confident that the tabled budget, if implemented without undue delays, will boost business confidence and policy certainty," concludes Ndlovu.
Siphosethu, MAGNA CARTA
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