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Budget Incentivises Retirement Saving

The proposed increase in the tax free lifetime retirement lump sum amount from R315 000 to R500 000 has been described as the most significant change in the 2014/15 budget, as outlined by Finance Minister Pravin Gordhan in Parliament yesterday.

The minister stated that draft regulatory reforms would be published shortly. “We intend to move progressively towards a mandatory system of retirement for all employed workers,” Gordhan added.

Industry sources said that this could potentially drive down costs and increase the uptake of retirement annuity products.

The reform is intended to benefit lower income earners who may in the past have been required to pay tax on their lump sum in retirement.

Retirement reforms have been in the pipeline for some time and yesterday’s budget speech highlighted emerging aspects in terms of tax changes aimed at incentivising and simplifying the environment, as well as providing insight into work in progress, said Rowan Burger, head of alternative products at Momentum Employee Benefits.

Warren Ingram, financial advisor at Galileo Capital commented: “It doesn’t come as a surprise to the industry. The original white paper on the reforms looked quite scary to the industry but the consultation has carried on, those reforms have started looking more responsible. Until we see the reforms in black and white, we won’t know exactly what they’re doing. But for the investor who has a retirement annuity or some kind of retirement investment vehicle, this is very good news.”

“Anything that drives the cost of these products down is ultimately good for the individuals who are saving,” he added.

Gordhan also stated that Treasury would proceed with plans to introduce tax-preferred savings accounts. Legislation for this will be presented to Parliament later this year.

“While investments won’t qualify for tax deductions, all capital and interest gains will be exempt. Contributions to the funds will be subjected to a lifetime limit of R500 000 and R30 000 a year. The account will allow investments in bank deposits, collective investment schemes, exchange-traded funds and retail savings bonds. Eligible service providers will include banks, asset managers, life insurers and brokers,” Gordhan explained.

Maarten Ackerman, senior investment strategist at Citadel Wealth Management commented that the 2014/15 budget was “quite a prudent budget given the current challenging economic environment. It is strict and sticks to proven measures.”

Indeed, the majority of commentators felt that the budget was underwhelming, with no surprises, which was expected in an election year.

One concern highlighted was the level of gross government debt to GDP, which is projected to increase close to the previous high recorded in the mid-1990s. “This leaves Government with no room to manoeuvre in the event of any unexpected downturn in the economy. Similar to Trevor Manuel, who was Minister of Finance from 1996 to 2009, Minister Gordhan will need to not only stabilise, but also lower the debt level in time to create fiscal space,” explained Sanlam Investments economist Arthur Kamp.

– Laura Owings (

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