Imara Asset Management SA welcomes simplified pensions
12 November 2013 | Retirement | General | Lara Warburton, Imara
The imminent prospect of a much simpler pension system should be welcomed by retirement fund contributors and the wider retirement industry, says Lara Warburton, managing director of Imara Asset Management South Africa.
The Illovo-based firm assists a growing number of clients with their retirement planning and says proposals to do away with different tax treatments for different retirement products will assist the vast majority of those planning for retirement.
The proposals are outlined in the draft Taxation Laws Amendment Bill – due to be aired at parliamentary hearings soon, and likely to be implemented on 1 March 2015.
Warburton notes: "Hopefully, the proposals will become law and we will have a pension system that is simpler to administer and easier to explain to clients. The proposed system will also encourage higher levels of tax-efficient saving ahead of retirement.
"The intentions of National Treasury and our legislators are praiseworthy and will usher in a new era of retirement saving and tax planning for those with the foresight to provide for later life.”
Currently, different tax deductions apply to pension, provident and retirement annuity (RA) funds.
Under new proposals, a standardised tax deduction will apply.
To promote a culture of prudent provision, the ceiling on tax deductibility may soon be raised to 27.5% of taxable income, regardless of the taxpayer’s age.
The contribution ceiling on RAs is presently limited to 15% of non-retirement funding income – discouraging people who build their own retirement nest-egg from stepping up their contributions.
Now contributors to all three types of pension product can achieve the same level of deductibility. This is especially beneficial to the self-employed who do not have access to corporate pension schemes, and to those who change jobs regularly.
In cash terms, the proposals limit the annual tax deduction to a maximum of R350 000.
Warburton said this would affect only a small proportion of those providing for retirement – people earning upwards of R1.3 million a year.
She added: "The proposals create scope for improving the effectiveness of individual provision in numerous ways. Likely implementation of the changes may be more than a year away, but it is advisable to re-examine your retirement provision and planning in plenty of time rather than get caught in a last-minute rush.”
