The proposal to Parliament by National Treasury to delay the implementation of the proposed retirement funding reform by two years is a negative development and should be reconsidered, says Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at the South African Institute of Professional Accountants (SAIPA).
“There has been extensive consultation with all stakeholders and agreement on the need for reform had been reached and a clear date set—in fact the process has been dragging on for years,” says Retief. “To propose a substantial delay like this at the eleventh hour is highly undesirable and will have several unwelcome consequences.”
Due to come into effect on 1 March 2015, the proposed reforms are aimed at harmonising the regulations and tax rules relating to the main retirement-funding vehicles—provident funds, retirement annuities and pension funds.
One of the goals of the reforms is to standardise the tax rules relating to these various funding vehicles. There is general agreement that this reform is necessary, and the insurance carriers and investment houses as well as financial advisors are far advanced in their planning for the shift, as are companies and individual investors. It’s unacceptable, says Retief, that uncertainty should be introduced at this late stage, and is likely to breed mistrust.
The other main goal of the reform is to protect retirement savings, primarily by altering the rules affecting provident funds. At present, members of provident funds are not allowed to claim tax relief on extra or top-up contributions, as is the case with retirement and pension funds. It’s a discrepancy that discourages retirement saving.
A further problem that the reforms aimed to solve was the fact that upon leaving a job, provident-fund members are allowed to cash in their entire savings, whereas retirement and pension funds have to be “preserved” by being transferred to a similar saving vehicle until a stipulated retirement age is reached.
“There’s some indication that unions are unhappy with this preservation approach because their members use retirement savings to fund current shortfalls. We even see people resigning from companies to access their provident funds, and then rejoining the same company a few days later,” says Retief. “While one cannot minimise the economic pressure people are under, it’s irresponsible to let short-term considerations mortgage peoples’ futures—government must find a better way to address the problem. Allowing this damaging practice to continue for two further years will have severe consequences for the future of the most vulnerable workers.”
SAIPA urges Parliament not to halt this much-needed reform.
MEDIA CONTACT: Cathlen Fourie, 012 644 2833, firstname.lastname@example.org, www.atthatpoint.co.za
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