Better incentives proposed to boost voluntary savings
Donwald Pressly A KEY message from the Budget is a drive to build an encouraging environment for savings, which includes reforming the tax treatment of contributions to retirement funds.
Finance Minister Pravin Gordhan said yesterday that to encourage voluntary savings, consideration was being given to the introduction of taxexempt short- and medium-term savings products. The proposal was that individuals should be permitted to save up to R30 000 a year “with a lifetime limit of R500 000 in registered savings or investment products that would be free of tax on interest, dividends or capital gains”.
The current tax-free interest income thresholds would be reviewed and possibly phased out as part of this reform, Gordhan said.
With the termination of the secondary tax on companies from the end of next month, with a withholding tax on dividends that would be implemented from April 1, he said pension funds would benefit as they would receive dividends tax free.
In the financial sector, there were too many products that were expensive, with participants in some investment vehicles losing up to 40 percent in charges at the end of the investment period.
While the state was driving the process to establish a mandatory statutory fund to provide pensions, life insurance and disability benefits, in the absence of such a fund, a large number of occupational and voluntary schemes had been established.
Many workers, primarily low income earners, were inadequately protected. The proposed national social security fund would be based on the principle of social solidarity, risk would be shared across the workforce and the state would back the fund.
The Treasury director-general, Lungisa Fuzile, reported in the Budget Review that alongside reform of the social security system, the government sought to encourage higher voluntary savings and improved retirement provision.
“Proposed reforms include mandatory preservation and portability, harmonisation of the tax treatment of contributions to retirement funds, reform of the annuities market and better incentives for saving.”
There would be consultation with trade unions, the industry and other interested parties during the year.