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By Richard Carter, head of product development, Allan Gray
There is a lot going on in the regulatory space. Between retirement reform, on the one hand, and the so-called ‘Twin peaks’ model of financial regulation on the other, it is challenging to keep on top of the changes that are imminent and those that are still some way off. With the first of the changes coming into force from March 2015, let’s review where we are at:
Increased tax deductions for contributions to retirement funds: delayed
Retirement annuity fund members will have to wait to enjoy increased tax deductions from their contributions to retirement funds. The tax deduction of up to 27.5% of the greater of taxable income or employment income, and the introduction of an annual contribution ceiling of R350 000, have been delayed until at least 1 March 2016.
Aligning retirement funds: delayed
Proposals to harmonise retirement funds have also been delayed until at least 1 March 2016. Treasury has stressed that vested rights will be protected, and that provident fund members will not be forced to annuitise their historic savings. This hasn’t prevented knee-jerk reactions from some investors concerned about the future of their retirement savings.
The proposal to include employer contributions to occupational pension and provident funds in the gross income of employees as a fringe benefit has also been delayed. This means that employees cannot treat these contributions as their own when calculating their tax deductions. As per current legislation, employer contributions to a retirement annuity fund will still be a fringe benefit and employees may treat these contributions as their own when calculating their tax deductions.
Changes to commutation amounts: delayed
It was also proposed that if the value of a retirement benefit at retirement is less than R150 000, the member should be able to withdraw the entire amount without the need to purchase an annuity. This has also been delayed.
The total value of a retirement benefit at retirement must still be less than R75 000 for the member to make a full withdrawal.
Tax-free savings set for 1 March 2015
While retirement reform has been delayed, the plan to introduce tax incentivised savings is going ahead. As envisaged, investors will be allowed to contribute R30 000, up to a lifetime maximum of R500 000, into a tax-free savings or investment account. Over-contributions will be taxed at 40%.
Certain product design restrictions are envisaged, and we are still waiting for these to be finalised. Once the regulations are finalised we will study their impact and decide whether or not to offer a product.