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Retirement reform moving at a snail's pace

01 June 2015 Michelle David, Norton Rose Fulbright

The retirement funding industry waited with bated breath for the Minister of Finance to announce the next steps in retirement reform in his 2015 Budget Speech.

Unfortunately the Budget Speech did not give the industry the anticipated clarity on the way forward.

No beating around the bush

The delegates at the annual Pension Lawyers Conference (held at the Sandton Convention Centre on 2 and 3 March 2015) got a slightly better indication of the state of retirement reform from the keynote address provided by Olano Makhubela, the Chief Director: Financial Investments and Savings at National Treasury.

According to Mr Makhubela retirement reform seeks to achieve six identified objectives:

1. To encourage preservation when workers change jobs.
2. To encourage annuitisation at retirement so that pensioners have an ongoing source of income.
3. To align the taxation of retirement contributions and benefits from retirement funds.
4. To introduce individual tax free savings accounts. Delegates to the conference were advised by National Treasury that the regulations in respect of the tax free savings accounts would be gazetted towards the end of February. The regulations were in fact published on 25 February 2015 together with a notice containing the list of entities authorised to administer tax free savings accounts. Both the regulations and the notice came into effect on 1 March 2015.
5. To encourage good value retirement products and services by reviewing costs; and
6. To enhance the governance of retirement funds.

The increasing worry

A key factor underlying retirement reform is the widely known statistic that only six per cent of South Africans who contribute to retirement funds will be able to retire comfortably.

The reform process is aimed at addressing the key factors that have been identified as underlying the inability of South Africans to retire comfortably or, more worryingly, to retire at all.

Tax singing harmony

The harmonisation of the tax system set out in the Taxation Laws Amendment Act of 2013 is intended to take effect from 1 March 2016 and not 1 March 2015 as was previously legislated.

The rationale is that the postponement will allow for consultations between Government and NEDLAC as well as allowing for better public communication. It would appear that the Tax Laws Amendment Act inadvertently omitted some retirement fund laws from its ambit. It was announced in the 2015 Budget Speech, National Treasury intends to propose amendments to correct the omission so that the omitted funds are also subject to the proposed new taxation regime.

When questioned, at the Conference, about the ability of trade unions to delay the implementation of retirement reform (a reference to the delay in the initial scheduled implementation), Treasury was clear in its response that the interests of all stakeholders would need to be considered carefully and that ultimately it is possible that the 1 March 2016 date could be pushed back further if it was not in the interests of all citizens to implement the reforms as currently scheduled.

The slow gears of progress

Despite there being very little new information to report on the progress of retirement reform, National Treasury advised that the draft regulations on default preservation, investment strategy and annuitiesshould be released for comment in June 2015.

Retirement reform is an ongoing process and it will take some time to complete the latest round. National Treasury’s aim is to ensure that whatever reforms are undertaken do not result in unintended consequences and loopholes which require correction through subsequent amendments.

Concerns that Government intends “nationalising” people’s pension or provident funds through the retirement reform process were quashed by government.

National Treasury through the 2015 Budget Speech, and at the Conference, confirmed that members of funds are encouraged not to withdraw their pension/provident funds but to rather understand the retirement reform process and use it to their long term benefit.

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