Retirement saving reforms on cards

2014-02-27 00:00

THE National Treasury, together with the ministers of Trade and Industry and Justice, will soon be taking action against abusive practices in the lending and debt collection businesses, Finance Minister Pravin Gordhan said yesterday.

He said some workers were taking home less than 25% of their monthly pay because of unscrupulous actions by debt collectors and irregular issuing of garnishee orders.

Many more people had access to credit these days, which was of benefit when productively used, but bad when used to fund excessive consumption.

“Cabinet has approved a number of measures to assist such households to reduce their debt burden, and stamp out the abusive and fraudulent activities of reckless lenders and unscrupulous debt collectors,” he said.

With regard to pension funds and encouraging people to invest in their future by saving more, he said there would be more pension fund reforms in the years ahead.

“Legislation has already been passed by Parliament to improve governance over pension and provident funds, and to align the rules and tax treatment of pension and provident funds, while at the same time protecting vested rights,” said Gordhan.

Consultations were under way with labour and business representatives on ways to cover six million employed people who do not have access to an employer-sponsored retirement plan.

“We intend to move progressively towards a mandatory system of retirement for all employed workers,” said Gordhan.

An agreement had also been reached between Treasury and the Association of Savings and Investment of South Africa on a way forward to reduce the level of charges for retirement savings products, and draft regulatory reforms would be published shortly.

According to the Budget Review, retirement savings reforms include changes to the taxation of contributions to retirement funds to provide additional relief for members and encourage them to save more.

Among these reforms are plans to make both employer and employee contributions taxable, up to a limit, for income tax purposes by the employee.

There are also changes to the retirement fund lump sum tax rates to avoid instances where lower income workers may be required to pay tax on their lump sum, even though they did not benefit from a deduction due to their taxable income falling below the tax-free threshold.

“Tax-preferred savings accounts”, first mooted in the 2012 Budget, would proceed as a measure to improve savings and these accounts would have an annual contribution limit of R30 000, to be increased regularly in line with inflation, to a lifetime contribution limit of R500 000.

On company car benefits, adjustments are being considered to treat employees who bear the costs relating to fuel and the upkeep of their company car, in a more equitable manner.

Measures to align the treatment of company car benefits for all employees include that actual retail market value of the vehicle be used in all cases, rather than currently, where, for example, vehicle manufacturers that import vehicles calculate the value of the fringe benefit at cost.

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