On 1 March 2021, the latest Taxation Laws Amendment Bill will come into effect. Known as T-Day, the legislation governs the retirement fund industry and aims to help South Africans save enough for their retirement by ensuring their savings are protected.
Mfana Mnisi, an Investment Fund Specialist at Sanlam Savings, notes that with only 10% of South African’s saving enough for retirement, the industry needs to find ways to adapt and evolve following the changes in legislation. “Prior to 1 March 2021, South Africans saving in a provident fund were able to take their entire savings at retirement as a lump sum which made them susceptible to quickly depleting their retirement capital,” explains Mnisi. “The annuitisation requirement has always applied to retirement annuities and pension funds but will now be extended to provident funds as well. This greatly increases the potential for members of provident funds to retire with dignity and reduce their reliance on the state or family members after retirement.”
In terms of withdrawal on emigration, retirement annuity members are now subject to a 3-year lock-in period before they can withdraw their fund benefits. This is expected to affect a very small portion of retirement fund members. Exact requirements for the new process are not known at this stage.
There has been a lot of concern around prescribed assets in recent months, however, Mnisi cautions that these do not form part of the 1 March 2021 legislative changes. Prescribed assets refer to a Government requirement to invest a certain percentage of retirement funds into specific assets such as SOEs and Government loans to support economic growth and reduce the high unemployment rate in South Africa given the extreme fiscal pressures that our government is facing.
Mnisi advises that South Africans should understand that the ultimate aim of the retirement reforms by the government is to incentivise more retirement savings and improve long term retirement outcomes. Ceasing taxing retirement products and extending tax deductions to provident fund members showed that government was prepared to forsake significant tax revenue to help people save for retirement. “This is a huge commitment from government. It is not aimed at the “nationalisation” of retirement funds. In the long run, it will give the government more capacity to focus fiscal resources on economic growth-enhancing projects,” concludes Mnisi.