Tax on retirement funds
The Minister announced that the tax on retirement funds will be reduced from 18% to 9% with effect from 1 March 2006.
This reduction should, in the longer term, result in an enhancement in benefits available to persons investing in the various retirement funds.
It was indicated that the reduction in the tax rate payable by retirement funds will coincide with reforms relating to the disclosure of costs and commission structures of retirement funds and the governance of retirement funds. The Minister advised that a discussion paper on the proposed regulatory tax reforms pertaining to the retirement funds will be released shortly.
The Minister also pointed out that the commissions payable under the long-term Insurance Act will be reviewed and the jurisdiction of the long-term Insurance Ombudsman, Pensions Fund Adjudicator and Financial Advisory and Intermediary Services Act Ombudsman will be clarified. A review of the regulatory environment relating to the retirement savings industry will be undertaken to protect the interests of consumers to restore consumer confidence in the retirement savings sector.
Mike Jackson, CEO of PPS Insurance comments, Many of our professionals are self-employed. The tax reduction ensures that their funds will now go further and boost their retirement provision.
In an attempt to encourage savings and retain interest income against the lower interest rate levels, the exempt threshold on interest and dividend income is increased to R16 500 for taxpayers younger than 65 years and R24 500 for taxpayers age 65 and older.
Those persons who have the appetite to invest offshore will be pleased to know that the foreign investment allowance has been increased from R750 000 to R2 million per person.
Jackson adds, As Minister Manuel has said, the tax regime has always encouraged provision for retirement. The latest changes provide further incentives to invest in retirement annuities.
In summary, therefore, the budget encourages an improvement in savings via retirement annuities particularly with the significant reduction of the tax rate payable by retirement funds and the slight adjustments to the interest exemption available to natural persons.
