Nicolette Dirk, finance writer, Justmoney.co.za
The Minister’s Budget speech made room for some savings incentives and this included retirement savings.
Tony Barrett, senior wealth advisory relationship manager, RMB Private Bank, said the major give- away in the budget was to increase the bands applicable to lump sum receipts on retirement.
“The tax free lump sum band has been increased from R315,000 to R500,000, the 18% taxable band goes up to R700,000 and the 27% band tops out at R1,050,000, with the balance of any retirement lump sums being taxed at 36%,” he said.
These new tables are applicable on all retirement savings made on or after 1 March 2014. According to Barrett, this news gives retirees the opportunity to unlock some retirement lump sums at very advantageous tax rates and then structure these lumps sums in an extremely tax efficient manner.
He added that retirees should make contact with their advisors and ensure that they take advantage of this new dispensation.
What consumers can expect from compulsory retirement
Many South Africans were hoping to gain further clarity on the issue of compulsory preservation pre-retirement. Described as a sensitive issue, especially in an election year, government confirmed that the initiative would be rolled out in two phases.
During the first phase would mean that should you leave your job, your retirement savings would be reserved by default. But you would still have access to this money.
With the implementation of the second phase you will however only be able to access to a certain percentage of your retirement savings.
It is still unclear what percentage will be preserved and what you will be able to drawdown. Government is hoping to roll out this initiative by the second half of 2015, for the latest.
What was predicted regarding retirement reforms?
Prior to the budget speech, David Gluckman, head of Sanlam Employee Benefits, said that in terms of retirement reform, the Minister has already made quite a few announcements in last year’s budget and some of this has already been rolled out during the past year.
“We’ve seen changes to tax coming from March 2015 and changes to how people can take money from their provident funds. So we expect consolidation, a bit more clarity on some of the details in the next year and maybe some clues to what the next steps are with regard to reform,” said Gluckman.
The Minister said that 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.