Cape Town – The retirement industry is in overdrive to prepare itself for a last-minute proposal to suspend new tax laws relating to provident funds.
The industry has been working for months to change its information technology systems and has spent a great deal of money communicating the changes to clients, according to Arno Loots, head of umbrella fund solutions at Liberty Corporate.
T-Day, as it is known, is set to go live on March 1. However, Finance Minister Pravin Gordhan has proposed suspending rules applying to provident funds for two years.
This followed sharp resistance from the Congress of SA Trade Unions, a key election partner of the African National Congress.
Gordhan conceded that the last-minute proposal to amend the tax changes will be costly for businesses, and that it will need to be finalised quickly.
“There must be certainty for the industry and employers/employees for what will happen on and after 1 March 2016, as systems need to be changed which is very costly,” Gordhan said in a document dated February 16 and sent to industry members.
Loots explained that IT systems have to go live two weeks ahead of T-Day to ensure there are no glitches on the day. However, they will now have to wait for Gordhan’s budget speech on February 24 to get clarity on the final decision. This will leave them five days, including the weekend, to make changes and test the system before T-Day.
“This means there will be a greater risk that something will go wrong with IT systems,” he said.
“A late change is very difficult to take out of the system,” he said. “It is like starting a rocket and then getting someone out just before the launch.”
However, Loots said Liberty has had numerous internal meetings to find a solution enabling them to be flexible, now that they know the proposals have been tabled.
The retirement industry has spent a great deal of time and resources communicating the tax law changes to its clients and these proposals will negate this process and bring confusion to the sector, warned Loots.
He praised the tax law changes as they stood before the proposals. “This is all about incentivising people to save and protect their savings,” he said.
“Now we will see more dependency on government grants for the elderly and children,” he said. “We are weakening the progress we would have made on our savings culture.”