Continuing the momentum created by a positive and well received State of the Nation Address, the Finance Minister delivered a well-balanced budget with a strong focus on fiscal consolidation and growth stimulation to avoid a further credit rating downgrade.
From a retirement fund reform perspective, a great deal of clarity has been provided regarding future implementation, and the notion of greater inclusivity of the provision of retirement benefits remain important. We are encouraged by National Treasury’s ongoing initiative to promote retirement savings among South Africans in 2018.
Regarding the annuitisation of provident funds and preservation, which formed part of the Tax Laws Amendment Act that was introduced 1 March 2016 but postponed to 1 March 2019, we are excited that this reform is still gaining traction to go forward as planned.
We also welcome Treasury’s commitment to modernise and improve the governance of all retirement funds, starting with the requirement that all retirement funds must now submit audited financial statements annually.
The increase in the prudential limits on offshore investments for funds under management by institutional investors — by five percentage points for all categories, including the allowance for investments in Africa – is very pleasing as it allows for better diversity for funds, giving investors less restriction and additional choice. Retirement Funds can now invest up to 40% offshore of which 10% is limited to Africa (increased from 30% including 5% in Africa).
We did not see an increase on the cap for retirement fund lump sum deductions, which remains at R350 000, which may prevent high income earners from contributing more as they get closer to this limit. They can however roll over un-deducted contributions to future years including into retirement.
There was no mention of the suggested 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. Although there was mention of broadening coverage to low income workers, which can possibly be done via auto enrolment.
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.
The overall sentiment from a retirement fund perspective remains positive, especially considering the various tax increases that have been announced, which all place 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.
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