There is good news and bad news in the Budget on the retirement planning front.
The good news is that after substantial consultation‚ the National Treasury has decided to introduce a flat contribution maximum rate of 27.5% of taxable income and an annual cap of R350‚000 for all taxpayers‚ made up of employee and employer contributions.
The bad news is that the implementation is "undecided". A further discussion paper will be released sometime this year and it is possible that the new system will take effect from 2015.
Over the past two or three years‚ the National Treasury has been looking into amending the current retirement funding allowances. Last year‚ it was expected that the new system would be implemented from 1 March‚ 2014 with different contribution caps for individuals below 45 and those over 45. Contributions caps ranged between R250‚000 and R300‚000.
"We received a lot of comments and responses from a broad section of sources and decided that it would be simpler to introduce a flat rate that is not age dependent‚" a National Treasury official told I-NetBridge/BD Live
"This will give a wider range of people greater incentive and opportunity to prepare for their retirement. Unfortunately‚ the introduction of the new system will take effect later than originally planned; this is partly why the cap has been raised to R350‚000," the official said.
In addition‚ the Budget Review said vested interests would be protected: balances in provident funds at the date of implementation‚ and subsequent growth‚ would not be required to be harmonised.
"It is proposed‚ however‚ subject to public consultations‚ that future contributions to provident funds after an agreed date‚ be subject to the same annuitisation requirements applicable to retirement annuity and pension funds. This requirement will not apply to provident fund members older than 55 years at the date of implementation‚" the Budget Review document said.
The document also said that contributions in excess of annual "caps" may be rolled over to future years. At retirement‚ where any non-deductable contributions remain‚ they will be set-off against any lump-sum or annuity income before tax is calculated to avoid double taxation.
Meanwhile‚ National Treasury said it proposed that all non-retirement fund disability and income protection policies will conform to the overall tax paradigm of non-deductible contributions and exempt payouts.