South Africans, generally, do not save enough for retirement. A large proportion tends to cash in some or all of their retirement savings when changing employers. This is evident in the low savings rate of the country – as various studies estimate that less than 10% of people can retire comfortably.
To increase the level of retirement savings, Government believes tax incentives can play a valuable role and they’ve been working on policies to change the landscape and reform retirement-planning. There are a number of changes that were intended to come into effect next year and the landscape around these changes is a complex one. Increasing longevity means one’s savings need to last longer and government’s proposals around retirement reform aimed to encourage investors to act in their own best interests.
However, the proposals caused wide scale panic. Thousands of people, who feared being forced to forego cash pay outs from provident funds when changing jobs, quit their jobs to access their money before the new laws take effect. It emerged earlier this month that Finance Minister Nhlanhla Nene agreed to a two-year delay after Cosatu successfully lobbied Treasury.
A number of service providers sadly have already spent a significant amount of time and money to be ready for the change next year, by implementing changes to their administrative systems only to hear they will now have to wait until 2017.
The delay will also mean that contributions to provident funds will not benefit from the same tax deductions enjoyed by pension fund contributions, until the law takes effect. Provident fund members will not be required to convert two-thirds of their savings into retirement annuities and will still be able to cash them out as a lump sum on retirement.
Payroll departments can’t ignore these ongoing changes in the retirement industry and it’s now more than ever necessary to stay up to date with legislation to avoid what could be an administrative nightmare and unnecessary costs.
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