4. Compulsory preservation
• One of the 2 biggest culprits for the lack of retirement
funding for so many has been identified as lack of
preservation of benefits
• The other one is the lack of annuitisation of provident fund
benefits
5. Basic premises
• Accrued and vested rights will be protected:
• All funds held in retirement funds at the date of implementation
will be subject to the “old” rules when it comes to access and
withdrawals
• Only new funds and new contributions will be subject to the new
rules.
6. Basic premises
• Retirement funds must “nudge” members into preservation:
• Eg default preservation fund
• Could consider making fund membership compulsory for
all employees
8. Options under consideration:
• Full withdrawal permitted with increased tax thresholds
• Higher tax to discourage withdrawal
• 3 -5 year monitoring period
• Monitor the impact of the default position and if no change then
re-visit
• Partial withdrawal only
• Eg 1/3rd
9. Options under consideration:
• Maximum income per month
• If unable to find employment
• Full preservation with no withdrawals
• Greater portability between funds (obligation to transfer
and to accept benefits)
11. Overall acknowledgment
• Many trustees lack knowledge, skill and expertise required
to perform their duties
• Will introduce mandatory regular training
13. Enabling a better income at retirement
• PROBLEM:
• saving towards retirement is highly regulated, member’s hand is
held the entire way:
• Compulsory membership, contributions collected at source,
investment decisions taken by trustees, only limited access
to funds
• BUT at retirement, member is thrown to the sharks and left
to own devices entirely
14. Types of Annuities
Life Annuity (Conventional Annuity) Living Annuity
Guaranteed income for life Risk of longevity
No investment risk Investment risk
Fixed draw down Variable draw down
No ongoing advice High advice
Relatively well costed, CPI linked annuities High costs, layered costs
a possible concern
May only be sold by registered life insurance companies
15. Stats Types of annuities
sold
2003 50% Life annuities
Size of the Annuities market 2011 14% life annuities
2003 R8 billion
2011 R31 billion plus
Commission on
a LA up to 10 x
Average drawdown is 7.5% plus charges higher than life
Average drawdown is 7.5% plus charges
==10% annuity
10%
22out 33chance that income will drop by Only 10% of
out chance that income will drop by
30% in real terms while alive policies sold by
30% in real terms while alive
brokers are life
annuities
16. NT’s challenge
• Considering ways to:
• Reduce the cost of living annuities and
• Reduce the level of financial advice required
17. Potential new vehicle
• Tax free vehicle based on investment collective schemes
out of which retirement income can be paid
› No investment choice
› BUT may choose between different vehicles with different
underlying investments
› May switch from one to another
› Restricted drawdown
› Restricted commission
› Prudent investment regulations (Reg 28)
18. Increased assistance to retirees
• Fund to have a default retirement income product
• Member may opt out of the default
20. Improving tax incentives for retirement savings
• Nearly R1 trillion is invested in SAs retirement market,
mostly in the private sector!
• Aim is to simplify tax treatment of contributions to the
different funds
• Increase rate across the board
21. Employer may deduct between 10% and 20% of approved remuneration of
Employer may deduct between 10% and 20% of approved remuneration of
employee as aabusiness expense. These contributions do not form part of
employee as business expense. These contributions do not form part of
the employee’s taxable income!
the employee’s taxable income!
22. 2012 Budget proposals:
• Employer contributions to funds will be taxed as a fringe
benefit in hands of employees
• Employee’s deduction iro own and employer contributions:
• 22.5% capped at R250 000
• 27.%% capped at R300 000
• Min deduction R20 000 to allow low income earners to deduct in
excess of the limits
23. 2012 Budget proposals:
• Non deductible contributions will be exempt from income
tax on retirement, against lump sum or annuity
• Rollover – same as RAs
• Contributions to risk and administration costs will be
included in the maximum allowable deduction
24. What still needs to be decided?
• Treatment of defined benefit and hybrid funds
• Exact definition of the Income Base to which the
percentages and caps will apply.
27. • Current: • Proposed
• Interest exemption • Scrap interest exemption
• BUT not visible enough • Tax incentivised savings
and vehicles
• Restricts investment choice
to interest bearing
accounts
28. How will it work?
• Earnings and capital tax free
• Contributions made from after tax money
• Caps on contributions:
• R30 000 p/a
• R500 000 per lifetime
• If 45 -49: ¼ of lifetime limit
• If 50 -59: ½ of lifetime limit
• If over 60: max
• In one transaction period
• Savings vehicle must be registered with SARS
29. What will it be?
• 2 options:
Interest bearing Equity accounts
accounts which which may invest
may invest in bank in CIS s that hold
deposits, JSE listed equities
Retail savings OR or which directly
bonds or interest own property
bearing CIS s such
as money market
funds
30. Where to from here
• Broad consultation
• Feedback by the end of November
• Policy decisions to be taken
• Draft and then final legislation
• WATCH THIS SPACE!
31. Thank you
In formulating the information in this document, Liberty has taken
due care to ensure that the views and opinions are based on
information which is relevant and accurate. While every care has
been taken before opinions and views are given, no
representation, warranty or undertaking (expressed or implied) is
given and no responsibility or liability is accepted by Liberty as to
the accuracy of the information contained herein. Any
recommendations made must take into account your clients
specific needs and personal circumstances. Any legal, technical
or product information contained in this document is not to be
construed as advice by Liberty.
Liberty Group Ltd is an Authorised Financial Services Provider in
terms of the FAIS Act ( no. 2409)
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