The ins and outs of retirement post 1 March 2016

By all accounts, 2016 looks set to be a watershed year for the financial services industry. Regulators and
government are pushing ahead with legislation that will both encourage transparency and encourage reform in
the industry.
One of the sectors that is set for significant change is the retirement sector. As of March this year, all retirement
vehicles will be taxed in the same manner and retirees will only be able to take a certain amount of their savings
as a cash pay-out. They will then be required to purchase an annuitized product with the remainder of their
capital.
Benefit the people
The key question on everyones lips is whether the T Day implementations will benefit the public. According to
Michelle Acton, Principal Consultant at Old Mutual Corporate Consultants, there will be a benefit for all, but one
must remember that each person will be affected differently.
Provident fund members who are currently contributing to their fund will now receive a tax deduction, which
means that some members will have a higher take home pay from March. All members who contribute more than
R350 000 per year, will no longer receive the tax deduction they used to receive, but any undeducted contribution
will be rolled over to the next tax year and deemed to have been made in that tax year.
These changes will not have an impact on members of provident funds who are over 55, as long as they remain
on the current provident fund.
For members of provident funds who are under 55, this change may impact the structure of how their retirement
benefit will be paid.
Additional benefits
There are other benefits these changes can offer the public. Acton points out that these include:
Members of all approved funds (Pension, Provident and Retirement Annuity Funds) will be afforded a
contribution deduction of 27.5% of the greater taxable income or remuneration, subject to a yearly maximum of
R350 000.
Employer contributions to retirement funds will be taxable as fringe benefits, with these contributions being
deemed to be employee contributions for the purposes of claiming the deduction.
The rights of Provident Fund members to take retirement benefits in cash will be protected for all benefits that
they have accumulated up until T-day plus the growth thereon until their retirement. This amount will not form part
of these members retirement interest for the purposes of applying the annuitisation requirements (explanation
below) that they will be subject to from T-day.
Achieving outcomes

What is important is that government achieves the objectives that it set at the beginning of the retirement reform
process. According to government, the number of people who could retire comfortably in South Africa was
alarmingly low and government hopes to remedy this through the retirement reform process.
Over the long term, the intention of this change is to encourage members to contribute more towards retirement
savings. The change also hopes to encourage those who have reached retirement to manage their savings to
last over the duration of retirement. By themselves, these changes will not ensure that people retire
comfortably. Consistent and sufficient savings over your entire working career is the best way of
improving your retirement outcome, said Acton.
Global connectivity
Because the South African financial services industry is one of the most developed industries on the continent, it
has significant connectivity with the rest of the world. This is beneficial, but it also means that the industry needs
to meet certain requirements.
Retirement and tax systems differ significantly around the world to reflect the nuances of local needs. The fact
that successful retirement provision generally requires a commitment to save sufficient amounts over a long
period is a fairly universal reality and so most systems have mechanisms in place to encourage this normally
through some form of tax incentives.
She adds that there remain significant differences in the detail around the world due to varying social and
economic structures across countries. As such, the goal should not be to simply align South African retirement
legislation with the rest of the world, but rather to structure it so that it most appropriately fits local conditions and
requirements over time.