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National Treasury and the South African Revenue Service (SARS) provided important feedback at the recent sitting of the Standing Committee on Finance as part of the parliamentary process regarding the much anticipated two-pot retirement system.
The proposed "two pot" retirement system would allow people to have the best of both worlds – early access to a portion of their retirement funds, should it be necessary, while still preserving a significant portion for when they retire. The changes are set to take effect on 1 March 2024, but without further draft legislation being published in February, there are concerns that industry players will not have time to implement changes to meet this deadline.
Tax efficiency should be a key focus area for any investor’s financial plan. By making sure our tax affairs are in order, considering the tax implications of our investment decisions and maximising the tax benefits on offer, we can improve our long-term financial outcomes.
On 29 July 2022, National Treasury released the 2022 Draft Revenue Laws Amendment Bill for public comment until 29 August 2022 to introduce the 'two-pot' system for retirement savings that was flagged in the National Budget.
In a case that illustrates the devastation of employers’ failure to keep up to date with contributions, two complainants - a daughter and a son - have failed in their respective bids to get risk benefits to be paid when their parents passed away.
It is sometimes said that the 'law is an ass' when one thinks the law is too rigid, unnecessary or ridiculous. The complainant sought payment of a surplus benefit following the death of her husband who was a member of the Auto Workers Provident Fund.
Much confusion and debate seems to exist in the market regarding the changes to the access to retirement benefits (pension preservation funds, provident preservation funds and retirement annuity funds) on emigration. The concept of ‘emigration’ and the SARS approval process (via MP336b) falls away from 1 March 2021 and is replaced with the concept of an individual ‘ceasing to be a resident for tax purpose’ in South Africa.
Even after the final reforms are in place investors will remain free to be their own worst enemy. Almost 10 years after National Treasury embarked on its mission to strengthen South African retirement savings, as reflected in the Taxation Laws Amendment Bill of 2020, the final reforms are scheduled to come into effect on March 1 but, unfortunately, fund members will still be free to sabotage their own retirement.
Changes to retirement benefits for provident fund members, initially meant to come in five years ago and now scheduled for next March, will see tax uniformity for all who contribute towards retirement. These changes, in terms of the Taxation Laws Amendment Act, will also encourage greater savings, something South Africa desperately needs as it seeks to crawl its way out of an economic hole.
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