The voice of concern regarding the Taxation Law Amendment Act

Confusion is never a good thing. If one has to ask the opinion of a number of people, without giving them relevant context or direction about the opinion you are asking them about, you will most likely get a hundred different viewpoints on a topic; added to this are the plethora of questions or concerns.

The retirement industry in South Africa is facing such a situation. We need to increase the number of people who are able to retire comfortably in the country and we need to encourage a culture of savings, but there is no clarity on the best way to achieve this.

Government has realised that clients are in a predicament. They have been working hard behind the scenes to establish the Taxation Law Amendment Act (TLAA), which is due to come into effect on 1 March 2016. However, there is a lot of confusion and a general lack of clarity regarding some issues.

Protective rights

In an effort to clarify some of the more serious misconceptions in the market, Camargue recently held a symposium which focused purely on the TLAA and how it will affect the public.

One of the major concerns is why there needs to be two separate accounts created by retirement funds. Jennifer Grefen, Executive: Retirement Benefits at NMG Benefits, said that this is to protect vested interests.

Retirement savings before 1 March 2016 will be regarded as vested interests and won’t be subject to the TLAA. Fund administrators need to create a separate account for these interests in order to ring fence them so that they won’t be confused with savings post 1 March 2016.

Another concern is the differentiation of those younger than 55 and those older than 55. Greffen pointed out that government looked at retirement savings and came to the conclusion that people mostly focus on retirement savings the last ten years before retirement. Because of this, derailing the savings plans of a 55 year old by implementing the TLAA may be seen as being a bit unfair. Those who are older than 55 are in a sense getting a free pass on a monopoly board as they don’t have to worry about the TLAA.

Avoiding the can of worms

One of the benefits of the TLAA is that member contributions towards retirement are tax deductible. Hugh Hacking, Head of Old Mutual Corporate Consultants, pointed out that this has major implications for the industry and needs to be managed in the correct manner.

“We need to agree on roles and responsibilities among the role players. It is important to understand the responsibilities of the employer, board of trustees/management committee, consultants, administrator and advisors working with members,” said Hacking.

He also gave examples of some practical areas that need the most attention:

• Educate staff involved in the various delivery areas – human resources, line managers, payroll staff, administrators, service centre staff and advisors – to enable them to deal with members’ questions and requests.

• Set up an employee communication program; this is critical to convey the correct understanding to avoid confusion. Consider a campaign rather than ad hoc responses to members’ queries.

• Consider face to face workshops for the most impacted members.

People will want to contribute more in order to access this benefit. Are companies ready for this? It could prove to be a  can of worms for those who aren’t. According to Hacking, companies need to seriously look at contribution rates, flexibility and defaults.

The high income quandary

Higher income earners possibly pose the biggest headache when it comes to the TLAA.

Hacking pointed out those members earning more than R1 272 000/y will have their tax deductible contributions capped at R350 000 level. But how will this work? Will the cap be calculated on a monthly basis (R29 167), or an annual cap of R350 000?

If fund administrators decide it will be calculated on a monthly basis, will members experience a reduction in take home pay? Should members be given a choice to reduce contributions to remain within limit? Finally; if there is a default, should the default be to continue current contributions with the option of reducing to the capped amount?

“There needs to be dedicated communication and education explaining the benefits of contributions even when in excess of deductible contributions,” said Hacking.

Editor’s Thoughts:
It seems that there are more questions than answers at the moment. And these are questions that government cannot ignore. There are a lot of concerns regarding the implementation of the TLAA. But as Greffen and Hacking pointed out: government has faced opposition to this before from labour unions; so one shouldn’t count on the TLAA being implemented on 1 March; only time will tell. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Ed note:   Following opposition this will not be implemented 1 March 2016.