FANews
FANews
RELATED CATEGORIES
Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

National Budget speech 2009 - Old Mutual comments on the possible phasing out of provident funds

12 February 2009 Old Mutual

The 2009 Budget Review reinforced the government’s intention to ensure retirement fund members secure an adequate income in their old age. As part of the speech, the Minister commented that o­ne option would be to phase out provident funds as a prelude to broader social security reforms. Currently, retirement funds can be pension funds or provident funds. Although there are tax differences, a key difference is the form of the benefit at retirement. In a provident fund a retiree can take their entire benefit in cash, while in a pension fund the retiree must use at least two-thirds of the benefit to purchase a pension. This means that members of pension funds are less likely to outlive their income or spend their hard-earned savings o­n things that will not improve their quality of life in old age.

For this reason, the state has o­nce again questioned the future of provident funds. This may have significant implications for provident funds and their members. However, assurance has been given that extensive consultation will take place between stakeholders before any decisions regarding the future of provident funds is taken. As such, the changes are unlikely to be introduced this year.

The potential phasing out of provident funds could take any number of forms. Based o­n previous comments by the Minister of Finance, savings already in provident funds may be unaffected by any changes. Maintaining the existing savings in provident funds would be helpful for members relying o­n their retirement savings to pay off housing loans. However, this can create a cumbersome double membership situation which could increase administrative costs. The administration of tax could also prove burdensome.

The practical considerations involved in a transition to the new system and the communication to members will require careful consideration. Provident fund members, trustees and advisors should stay abreast of these developments. Given that changes are unlikely to be finalised soon and that existing rights will be recognised, members of provident funds need not be concerned about the safety of their retirement savings.

Quick Polls

QUESTION

The South African authorities are hard at work to ensure the country is removed from the global Financial Action Task Force grey-list by February or June 2025. What do you think about their ongoing efforts?

ANSWER

But what about the BRICS?
Compliance burden remains, grey-list or not.
End-2025 exit is too optimistic.
Grey-list is the new normal.
Too little, too late.
fanews magazine
FAnews October 2024 Get the latest issue of FAnews

This month's headlines

The township economy: an overlooked insurance market
FSCA regulates crypto assets: a new era for investors
Building trust: one epic client experience at a time
Two-Pot System rollout underlines the value of financial advice
The future looks bright for construction
Subscribe now