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Initially I was stunned when Finance Minister Nhlanhla Nene postponed the retirement reforms due to be implemented on 1 March 2015; all because of trade union pressure. But after swallowing some Imodium and a Prozac I have thought again. Remember Matthew, the tax system is part of our democracy and bullying through reform with a major player unhappy is not a good idea.
I am unconvinced by the anti e-toll protests. But their energy has taught the Government what happens when change is imposed willy –nilly and without consultation.
If National Treasury concludes a deal with the unions, that is not necessarily a bad thing. There are going to be some tough decisions regarding tax burden in the next year and it will be so much better if there is a co-operative mood from the start.
The unions are primarily against forced preservation of provident fund benefits. This is the big gripe They want it so that the member can resign or retire with the option to cash in everything. Previous minister of finance Pravin Gordhan was extremely concerned about this and rightly so. Over the PG regime much effort went towards curbing the plundering of retirement fund savings.
At the same time UK Chancellor George Osborne reckons pensioners have the right to choose and is lowering restrictions on withdrawals. It will score votes in next year’s UK elections for sure. But is it a good thing?
Nene is quite right there has been a lot of totally irresponsible media coverage of the proposed preservation regime. The new rules didn’t even touch those over 55 or any benefits accumulated prior to 1 March 2015.
We have also seen widespread irresponsible advice that it is better to resign or retire prior to 1 March 2015. But when I tried to set the record straight in this column only 450 people read the article while 27 000 visited my uninformed interpretation of what’s on Judge Masipa’s mind.
Forced preservation does little harm. It encourages the member to stay in the tax haven of the retirement fund. And, above all, it keeps the vultures away.
Pensioners are easy targets for everyone from ponzi scheme salesmen to children who couldn’t be bothered to get a job. When I hear that line “Im going to use my pension payout to start a flower shop with my son in George’ I just shudder. But even this stuff is not the biggest cause of the plethora of resignations to raid the pension funds.
There are rafts full of working South Africans being threatened by loan sharks. For many, the only way out of the dilemma is to resign, cash in the pension and repay the loan sharks.
But there’s more.
Part of the retirement form package was the capping of the tax deduction on retirement fund contributions at 27,5% of taxable income or R350 000 per annum.
So for the next 2 years executives can continue to contribute up to 20 percent of their bonuses and share option benefits to their retirement funds. This can reduce their effective rates of tax from 40% to 32%. No capping applies. Some contributions will run into millions per taxpayer.
By postponing retirement fund reform we are avoiding the real issues. If that’s a victory for the unions then they are really setting their sights very low.
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