Pension regulations don't go far enough

"Essentially, the government wants to get more people to save, which will place less reliance on the state," said Vedika Andhee, director of tax at Ernst & Young.

Andhee says that by getting employed people to save towards retirement and not withdraw cash when changing jobs will allow the government to provide more social security for those who really need it.

But Andhee said the reforms proposed are not wide enough. "It will only affect those fortunate enough to have a job and who, by virtue of that employment, are members of a provident or pension fund.

"To retire properly is costly and these reforms only embrace a certain section of the population while the large majority will not be affected. There should be more education on saving for retirement and the amounts needed for people to be able to retire and maintain their living standards."

The proposed reforms would make tax treatment of retirement funds - pension funds and provident funds - identical. Because retirement annuities are managed privately, they will not be affected.

In future, whatever kind of fund you are in, the tax deduction setup will be the same.

Multiple withdrawals

Michelle du Toit, head of OMAC Actuaries & Consultants, said employees on total-cost-to-company packages would experience little change, but those on a basic salary plus benefits would need to have their pay adjusted to account for the proposed changes.

"If you resign, there will be an automatic transfer of your retirement savings to a preservation fund. It will change behaviour because people have always thought taking the cash is the default option, particularly because they seldom get advice," said Du Toit.

"The default option will become preservation because to get the payout will take effort and there will be limitations on access," she adds

She said multiple withdrawals would in future be allowed up to certain limits, which was intended to keep unused amounts in the system. Unused withdrawal allotments will roll over to the next year, in case the individual needs some cash.

Efficient Group chief economist Dawie Roodt said the government was not setting a good example for saving. "The minister introduced measures to get the country to save, but he has also been the biggest cause of [the nation not saving] and a huge fiscal deficit. In essence, we are borrowing long-term for short-term expenditure and destroying capital. This is being guilty of exactly what they accuse us of."

He says this was not the only irony for taxpayers in Gordhan's budget speech. Lashing out at the growth in unsecured lending and the resultant proliferation of garnishee orders, through which employers are given a court order to deduct amounts from an employee's salary and pay it to the creditor, Gordhan said many workers were left with no money to live on after servicing their debts.

Since the Tax Administration Act kicked in last year, the SA Revenue Service can garnish those who owe it money to recover outstanding debts.

"In essence, the minister's addressing unsecured lending prevents competition for payment in the country's tax base. I've heard horror stories of SARS going into people's bank accounts to take money allegedly owed to the tax man. How can that be constitutionally acceptable?" said Roodt.

He said the R7bn tax relief for personal income tax announced in the budget was targeted at lower-income earners, whereas those in the upper brackets would effectively be paying more.

"The R7bn figure is misleading because it is not enough to reduce the fiscal drag in the upper-income categories. The minister is simply taking R7bn less than he would have."

Andhee said it was difficult to calculate the increase in the effective percentage of tax that the average household would be paying through so-called stealth taxes such as the increase in the fuel levies, because household expenditure statistics would not be available for some time.

"Year-on-year, I would expect the increase in household expenditure to be way above the 24% shown in the last set of statistics, mainly because of the fuel price increases and the knock-on effect of these rises," Andhee says.

Source: Sunday Times via I-Net Bridge