S.A's Budget 2017 makes retirement funds attractive

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The 2017 budget speech takes place at a time when the fiscus is under pressure. Unsurprisingly, the Minister has raised the necessary additional revenue by primarily increasing personal taxes. This comes through in the form of lower bracket creep relief, a new tax bracket for high income earners, a higher dividend withholding tax rate and higher indirect taxes.  All this places greater pressure on consumers and their ability to save while at the same time making tax preferred vehicles, such as retirement funds, all the more attractive. 

We are encouraged by National Treasury’s ongoing initiative to drive retirement and social security reform, as we believe this demonstrates a positive reinforcement of the need to implement measures to encourage retirement savings among South Africans. We welcome the clarity on how the R350 000 cap should be applied, although we would have liked to see this cap increase with inflation.  The ability to preserve benefits post retirement is also a positive move. 

The increase in the annual allowance for Tax Free Savings, which was increased from R30,000 to R33,000 is also pleasing. This is yet another vehicle that individuals can use to avoid dividend withholding tax and capital gains tax. Although the lifetime limit of R500,000 wasn’t mentioned, it is unnecessary at this stage as we’re only entering the third year since its introduction and we trust that this limit will also be adjusted in time.

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No update was announced regarding the annuitisation requirement for provident fund members, which formed part of the Tax Laws Amendment Act that was introduced 1 March 2016 but postponed to 1 March 2018. It is encouraging that Government is continuing to engage with key stakeholders to reach a consensus and we trust that a final decision in this regard will be made well before the proposed implementation date of 1 March 2018.

In terms of social security reform, the Government acknowledges in the budget that this will take time to implement and we support the need to seek short-term endeavours to address the chronic underfunding of retirement that South Africa faces.

One such suggestion is compulsory auto-enrolment of employees into a fund by their employers, which would make it compulsory for an employer to offer their employees a retirement fund structure. Our research shows that many South Africans hold a poor view of their current and future financial situation.  This reform, if introduced, has the potential to enable the retirement system to better prepare more South Africans for a financially secure retirement.

 

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