SA still in recovery stage for change

2011-02-26 10:31

The Budget Speech from Finance Minister Pravin Gordhan could not have been more sober. We are still in recovery after the recession and it must be borne in mind that our tax base has shrunk. In spite of better systems of tax collection, a budget deficit will remain with us for some time, which helps us understand why there really aren’t any great changes as far as retirement reforms are concerned.

The budget proposes that:
» The one-third rule, wherein fund members are allowed to cash a third of their fund value on retirement of their pension and retirement annuity funds, might be applied to provident funds.

» Employer contributions to retirement funds might be treated as fringe benefits.

» From next year, employees will be allowed to contribute up to a maximum of 22.5% of taxable income into approved retirement funds limited to R200 000 a year.

The introduction of the one-third rule to provident funds, which presently allow access to fund value at resignation, retrenchment and retirement, is an expression of concern by government at the lack of preservation of retirement benefits.

This muted reform might result in restriction of access to retirement benefits when employees change jobs.

The treatment of employer contributions as a fringe benefit addresses the concern about the cost to company trend where the employer can claim maximum tax to the detriment of the employee. The benefit will now go to the employee, as seen by the 22.5% that employees will now be allowed.

This means employer contributions will be taxed in the employees’ hands, potentially affecting retirement savings. It also means the allowed tax deductible 15% on non retirement funding income will fall away, which is in conflict with the objective of promoting retirement savings.

I do not see this as a problem as the amount not used in any tax year can be claimed in the following tax year.

» Diale is a financial planner. He can be contacted on 078 775 0802

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.