As you may be aware Treasury is currently in a consultation process on retirement reform. There have been a number of reform proposals, the latest of which was released as part of the budget speech. It is evident that Treasury are listening to the feedback and have again revised their proposal on retirement reform for comment. Importantly, all your existing rights are protected and secondly the implementation of this proposed legislation is March 2015.
The need for reform?
It costs all of us too much to save for retirement. Asset manager fees, administration and advice fees are collectively too high and government is looking at ways of driving these costs down.
Past experience has shown that Trustees of pension funds are not capable enough or correctly qualified to be doing the job of protecting members’ interests.
We, the public are not saving enough for retirement, i.e: are not contributing enough on a monthly basis.
Employees are resigning from their jobs and cashing in their pension. This is often to kill off debts on lifestyle expenses or even worse, loan sharks.
Government and now the FSB are looking at how to drive the cost of saving for retirement down. They are looking to consolidate the industry into a few big players. Advice around these funds will be regulated by government and the advisers will be fee based.
It has been proposed that the cost of this advice will be borne by the fund.
Trustees of pension funds will have to have a certain level of competence and experience to be appointed as a trustee.
Government is simplifying the retirement playing field and will allow you to increase your contributions to all retirement funds to 27,5% on a cost to company basis. This is a massive jump. They will cap this total contribution to all retirement funds for any individual at R350,000 per annum.
Critically, they are going to stop individuals from withdrawing pre retirement. This means when you resign from a retirement fund, you will not be allowed to cash in the full amount. In the past this has been a major stumbling block with the unions and their members. Although it was financially suicidal to do so, the majority of individuals opted to withdraw their money, paid the tax and then spent the money. What the government will now be introducing will be to allow withdraws up to 10% per annum of the money preserved. Thus, if you are unemployed for a long time or disabled then you would be able to withdraw a certain amount over a 10 year period. The thinking being that your circumstances should change during this time and hopefully you would have preserved some of your retirement benefit.
At Veritas, we believe that the government is heading in the right direction. We think there may be further consultation and changes but in essence these proposals will form part of the retirement reform legislation that will be implemented in March 2015.
Author: Barry O’Mahony