130319 retirement industry reform presentation march 2013


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This document explains the details of the South Africa retirement industry reform, including tax treatment of retirement fund contributions, preservation of retirement savings, traditional life annuity, living annuity and living annuity reforms.

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130319 retirement industry reform presentation march 2013

  1. 1. Daberistic Financial ServicesCreating Financial Security, Prosperity and Wealth www.daberistic.com Daberistic
  2. 2. Agenda• T-Day (taxation reform)• P-Day (preservation reform)• Living annuities reform Daberistic
  3. 3. Daberistic Financial Services• Authorised financial services provider, FSP # 25477• “One-stop shop” offering – Life insurance – Medical aid – Investments – Car and household insurance – Business insurance – Funeral plans Funeral plans Daberistic
  4. 4. Our product providers Daberistic
  5. 5. T-Day• Due 1 March 2014• Affect taxation of retirement fund contributions – Employer’s contributions added to taxable income as fringe benefit – Individuals allowed 27.5% of the higher of taxable income or employment income as deduction, for contributions to pension, provident and retirement annuity funds Daberistic
  6. 6. T-Day– Maximum annual deduction R350,000– Contributions in excess of the annual cap may be rolled over to future years– Any non-deductible contributions will be added to tax-free lump sum at retirement– Group risk insurance premiums tax deductible– Tax-preferred savings and investment accounts in 2015 Daberistic
  7. 7. T-Day• any new contributions made to a provident fund will be subject to the same annuitisation rules as pension funds: • At least two-thirds of the savings must be used to purchase a pension at retirement. • Any provident fund savings made before T-day, and any investment growth on those savings, will not be subject to the new pension purchase requirement (i.e. up to 100% lump sum withdrawal benefit) Daberistic
  8. 8. P-Day• Tighter controls on preserving retirement savings, – Retirement funds must have default preservation funds for exiting members – Must guide members of converting savings into a regular income after retirement – allow access savings before retirement during periods of unemployment Daberistic
  9. 9. P-Day• Currently limited to one withdrawal from a preservation fund before retirement, but the withdrawal may be 100 percent of your savings.• New proposal: allow for an income stream in periods of unemployment, allowing for one withdrawal a year.• Annual withdrawal formula: the greater of the state old age grant (R1 260 from April 1) or 10 percent of initial preservation fund deposit, excluding any portion to which vested rights apply. Any unused withdrawal amounts may be carried forward to future years. Daberistic
  10. 10. P-Day• retirement fund divorce settlements will be subject to the proposed new preservation withdrawal rules allowing for a limited income stream• Relax preservation requirements of RA funds Daberistic
  11. 11. Living annuities• Flexible retirement income vehicle – Choice of underlying investment funds – Withdrawal rate 2.5% to 17.5% – On death, balance paid to beneficiaries – No guaranteed return – No guaranteed income level Daberistic
  12. 12. Traditional life annuities• Greater certainties in retirement – Annuity rates quote by life insurance companies upfront – Can choose between level and escalating pensions – Can choose between single and joint life annuities – Pension amounts guaranteed – Can ensure pension payments guaranteed for up to 20 years – On death, no balance paid to beneficiaries Daberistic
  13. 13. Compare annuity products Level life annuity Escalating life annuity ILLA250002000015000100005000 0 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Daberistic
  14. 14. Living annuities reform• Problems with investment-linked living annuities (ILLAs) – High costs – Poor advice – Wrong investment choices – High drawdown rates Daberistic
  15. 15. Living annuities reform• Collective investment scheme management companies such as unit trust and exchange traded fund companies be allowed to sell illas without registering as a life assurance company• Increase competition and bring down costs Daberistic
  16. 16. Living annuities fees3.50%3.00%2.50%2.00% Adviser LISP platform1.50% Fund manager1.00%0.50%0.00% Current Future Daberistic
  17. 17. What does this all mean for me?• Get into habit of saving for retirement• Get into habit of preserving retirement savings when changing job• Lower costs -> higher returns on retirement savings• Need for good financial advice Daberistic