Can you remember?
Can you remember, as a kid, reading about Doctor Dolittle and the fantastic “pushmi-pullyu” a gazelle-unicorn cross with two heads (one of each) at opposite ends of its body? Whenever it tried to move, both heads went in opposite directions and as a result it went nowhere.
I could not help but think that the announcement in the budget speech about the proposed changes to retirement funding seem to remind me of the mythical animal. On the one head we have South Africans massively under saving (for retirement) and a struggling local economy while on the other head we have Treasury apparently keen to encourage (retirement) saving but at the same time limiting the amount that people can save (for retirement).
In his speech, Pravin Gordhan made the proposal to increase the percentage that South Africans can contribute to their retirement savings (via pension and provident funds and RA’s). This is all good but he then went to put limits on the maximum contributions. It is proposed that from March 2014, individuals under 45 will be able to contribute 22.5% to their retirement funds while those over 45 will be able to contribute 27.5% to their funds. But, there will be a maximum contribution amount of R250000 and R300000 respectively. Anyone earning more than R1.1 million per annum will, in future, not be able to take full advantage of the tax saving currently available to them via their retirement funds. Any additional money that they want to save for retirement will either have to be invested elsewhere or could be put into the retirement fund but wait until retirement for the tax benefit.
There will also be a minimum contribution of R20000 per year to allow low income earners to contribute in excess of the maximum percentages.
In addition to these changes he also proposed introducing a tax friendly savings vehicle (similar to ISA’s in the UK?). It is proposed that these investments will replace the current interest free-exemption limits with individuals being allowed to contribute up to R30000 pa but with a life-time maximum of R500000 “to ensure that high net-worth individuals do not benefit disproportionately”.
So what I hear you say, anyone earning more than R1.1 million probably does not really need the tax breaks as much as the poor do. What is the obsession with penalising the rich?
There are currently very few (rich) people carrying the tax burden in SA and if you kill the goose that is laying the golden eggs then you wont have the funds to pay for the poor.
Has no one told the minister that any money that is invested in retirement funds is invested in SA and working for and in the SA economy but that money (of the rich) that is not in retirement funds is probably offshore working in some other countries economy? Money that cant be invested into retirement funds has the potential to leave SA (and never come back) and surely that is not what they should be trying to encourage?
We need people to invest in South Africa, not offshore and by capping the contributions to retirement funds you are effectively limiting the amount of money that (the rich) people can invest in South Africa. One body, two heads and each one pulling in different directions – we’re going to end up going nowhere!