Treasury sets the pace

 

Rarely does a year or two go by without SARS amending some of the tax rules that relate to Trusts, but lately their aim is squarely placed on eradicating the 'tax efficiencies' of Trusts. This is a complex issue, so rather than skimming over it here, I will spend more time on this topic in the near future.

 

Let's look at Retirement contributions and kick off on a positive note. The good news here is the increased tax rebate approach that SARS has taken to motivate employed citizens to save for their old age. In 2011, Mr. Gordhan announced some exciting changes in the tax allowances on Approved Funds (funds that are approved by the Commissioner of SARS and the Pension Fund Registrar), and it appears that we'll have a clearer picture of what this legislation will be by March next year. Up until now, Pension, Provident and Retirement Funds and Retirement Annuities all had their own set of tax rules and deductable contributions, which, quite frankly, worked against each other and made it impossible to motivate anyone to save additional monies to avoid poverty at age 65. Although there are still some smaller issues to be resolved here, the bottom line is clear. You will now be able to contribute up to 27.5% of your gross remuneration to your Retirement Fund or any combination of these funds. This, however, will be capped to a maximum amount of R350 000 per annum, per individual.

 

Now for the bad news, and the blame for this can be laid at the feet of sensational journalism that was said to be 'in the best interests of the public'. Growing up in the 80s and 90s, I rarely missed reading the Sunday papers' financial sections and was often confronted by the blatant slogging off of Retirement products - because nothing sells like bad news, right? This led to the creation of a generation whose trust in traditional Retirement products was shattered, and as a result, they never made use of saving products, rather jumping from port to starboard over the years with some or other illusion of saving. Now in their late 50s and 60s, this generation will retire with insufficient savings to see them through their golden years and sadly, many will live in poverty.

 

Statistics show that only 2% of South Africans will be able to retire with more than 70% of their last income. And when you look at these individuals, they have the following in common:
• They made use of the 30 or so years of their working lives to save diligently each month.
• They lived well within their means. Most lived in the same house for 30 years, drove the same car, and never went on lavish spending sprees. They lived a good, standard, and sensible life, but most importantly, they will be able to maintain this standard of living through to the age of 80.

 

So what is the downfall of most of us? No long-term planning and trying to keep up with the Jones's, which is an expensive hobby. The latest stats show that the average age of individuals going into liquidation or experience credit problems is in their late 30s. This is due to the 'have it all now syndrome' and as a result, over committed in their 20s.

 

To join the ranks of those individuals who can look forward to retiring comfortably:
• Don't over commit just so that you can have it all and keep up with your friends or colleagues, because it will catch up with you.
• Choose a savings vehicle designed to be flexible enough to see you through the next 30 years or so. Don't cash it in or cancel it, the reward is well worth the wait.
• Take heed when Mr. Gordhan tells you that you need to put at least 25% of your monthly salary away, over 30 years, to be able to maintain your dignity at 70.
• And lastly, have an in-depth session with your financial advisor or broker before acting.

 

South Africans have access to world-class products, be it Pension Funds or Retirement Annuities, thanks mainly to the efforts of the Financial Services Board (FSB) and improved legislation. My only hope now is that we can teach the next generation to avoid the same mistakes we made.

 

dinFO

How well are your retirement savings matching up to your desired retirement age? Visit the link to the retirement funding calculator and find out! www.sanlam.co.za/wps/wcm/connect/sanlam_en/Sanlam/Tools/Retirement/