Retirement reforms that come into effect on 1 March (T-Day) could hold several important benefits for South Africans.
Combined with the tax-free savings account (TFSA) framework introduced last year by the SA government, the tax concessions they offer provide a good opportunity to boost your retirement savings.
The new law allows for a 27.5% (of the greater of your remuneration or taxable income) tax deduction on your fund contributions, up to R350 000 in total per year.
Derick Ferreira, senior product manager at Old Mutual “From T-Day, South Africans will enjoy the same tax deduction concessions across all relevant retirement funds, namely retirement annuities, pension and provident funds.”
For retirment and pension funds, when you retire from any of these funds, you can withdraw a maximum of one-third of your fund’s value as a cash lump sum. The remaining two-thirds must be invested in an annuity. If the fund value of an approved retirement fund is less than R247 500, you are allowed to withdraw the total in cash on retirement. It has been proposed to delay for 2 years (from 1 March 2016), the T Day reform of subjecting provident fund members to the same annuitisation requirements at retirement as pension fund members.
The new laws aim to reduce old-age poverty and excessive dependency on the state and relatives, which is a major problem in our country. Ferreira said he expects the tax law changes to lead to an upsurge of interest in all savings vehicles this year, as investors and retirees look at savings options that offer them maximum income tax concessions or, in the case of Tax Free Savings Accounts (TFSAs), tax-free growth and full access to their savings.
TFSAs were primarily introduced by the government to encourage a culture of saving among consumer. The benefits include the opportunity to save up to R30 000 a year and up to R500 000 over a lifetime, completely tax-free. This means you pay no tax on the growth of your savings (dividends, capital gains or interest), nor on any withdrawals.
At Old Mutual, nearly a third of the company’s TFSA sales were online, showing that a younger, more digital-savvy audience are making use of this saving option, which illustrates a commitment to ongoing financial planning and savings over the long run and may be a sign that some progress is being made in changing the way South Africans think about saving.
Source : news24 http://ow.ly/YGzFu