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Retirement Reform in South Africa

Still in National Payroll Week, there is a lot happening in South Africa that affects Payroll Administrators.    Cathie Webb and I talked about the issues around Retirement Reform.

Both the Payroll Author’s Group (PAG) and South African Payroll Association (SAPA) have held information sessions on the topic, and Cathie has found that not everyone is aware that the 1st March 2015 heralds a change in the way in which our retirement funds are dealt with
  • ·         by our employers while we are working,
  • ·         by government (department of finance) once we retire.
The change is said to be because of the South African culture of not saving for retirement adequately, which is creating increasing pressure on government to care for us post-retirement.

These changes were announced in 2013.

While the impact may not be great on all employers, it is worth determining the impact, if any, on your staff.

If there is an impact, a process of change management should be undertaken.

So what are the changes?  Simply put, they include:
  • ·         Revised contribution incentives for retirement savings (up to 27½% of remuneration or taxable income – whichever is the greater, or up to a maximum of R350 000);
  • ·         Valuation of defined benefits contributions (the employer contribution becomes a fringe benefit, according to a legislated formula, and which will be calculated by fund actuaries, for each component of the fund);
  • ·         Alignment of Provident fund annuities, post retirement (i.e. from 1st March contributions to Provident funds are tax-deductible like Pension fund contributions, and post retirement the Provident payments become taxable);
  • ·         Exemption of non-deductible retirement contributions;
  • ·         Retirement fund benefit payouts (Provident fund members will be required to annuitise upon retirement for funds accumulated after 1st March 2015);
  • ·         Retirement lump sum taxables (changes to the tax rates applicable to pre-retirement and on retirement lump sum withdrawals);
  • ·         Personal insurance (life and disability premiums no longer tax deductible, and become tax free on pay out);
  • ·         Cross-border retirement savings (laws regarding contributions to local and foreign funds still to be reviewed), and;
  • ·         Tax preferred savings accounts (a paper was open for comment until end June.  The idea is to promote savings, and to allow specified contributions, presumably with tax incentives).

What should we do now?

Cathie has recommended the following steps:

  • Ensure that your Fund administrators are clear on the changes, and that they discuss these with your management, and Fund Committee;
  • If on a Provident fund, calculate the difference in take home pay that your staff will enjoy from 1st March 2015
  • Arrange for an information session for staff;
  • Recommend that the additional take home pay be invested for retirement – after all, they are used to not having this amount monthly, and every cent invested early reaps the benefits of compound growth.
She has expressed concern that difficult economic times might encourage people to take the additional money instead of saving and has calculated for us what that monthly R100 could be if it was left in the fund for 10 or 20 years.

She has assumed a conservative interest rate of 5%, which adds up to nearly R16 000 over 10 years, and in 20 years takes it to over R40 000, with investment input of R12 000 and R24 000.

As with all financial decisions, it needs to be looked at in terms of other investments, and with the input of good advice.

Cathie believes that it is worth investing the value for a time when our salary is no longer a renewable resource.

Once again, thanks to Cathie for her invaluable input.


National Payroll Week - 30th June to 4th July, 2014


Links, References and Notes

Payroll Qualification
Business Connexion:Accsys

email:      tschroenn@accsys.co.za or cwebb@accsys.co.za
twitter:   @TerylSchroenn or @CatiWeb

Note

Thank you for reading Teryl@Work.   Should you wish to use any of the material, please acknowledge this blog as the source



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