For all my South African clients abroad that still contributes to their pensions back home. Retirement reforms, a cloud with a silver lining...

South Africans are generally very harsh on themselves and their country. Bad news is discussed in social media, the newspapers and in the internet at length, whilst positive stories are often either ignored or just mentioned in passing. This is exactly the case with the latest retirement fund reforms which have been signed by the President and are due to be implemented on 1 March 2016.

The implementation of this act is certainly a victory for rational thinking over rhetoric and politically motivated own goals but unfortunately very few people have actually acknowledged this fact.

The essence of this act is that it will “level the playing fields” between the different retirement funding vehicles, both from a tax deductibility perspective and from an accessibility perspective. All retirement fund contributions up to 27.5% will be allowed as a tax deduction by the member up to a maximum of R 350 000.00 per annum. This means that members of provident funds will now be allowed a deduction on their contributions. It also means that company contributions will now be treated as a fringe benefit in the hands of the employee but that the employee will be allowed a tax deduction on those contributions subject to the 27.5% and the R 350 000.00 maximums.

Probably the most important aspect of the new reforms is the preservation of the retirement benefits. This is the area which most people are concerned about. It should however be noted that given South African’s propensity to make their meagre retirement provisions disappear faster than smarties at a 6 year old’s party, I believe that enforced preservation of retirement capital is a very good thing. Matthew Lester summed it up very nicely where he said “I am usually prochoice but on provident funds, I am pro-preservation.” Provident fund members over the age of 55 will still be allowed access to their entire Provident fund value. Members under the age of 55 on 1 March 2016 will however not lose their “right to waste” their provident fund benefits accumulated so far. From 1 March 2016 provident fund members under the age of 55 will have their fund value on that date placed into a “vested portion account”. All contributions (plus growth) after 1 March 2016 will be separated from the vested portion and this new portion will be subject to the preservation stipulations. The vested portion will grow at the same rate as the post 1 March 2016 portion.

For those members fortunate enough to have retirement fund contributions in excess of R 350 000.00 per annum, careful planning needs to be done to ensure an optimum retirement funding solution.

I definitely feel that the retirement fund reforms are a step in the right direction and should have a positive impact on South Africa going forward. Please bear in mind that I have only summarised a few of the changes and you need to discuss the full impact of all of the changes with your Financial Advisor

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