South Africa plans to make it compulsory for all workers to join a retirement fund as it seeks to encourage saving, Finance Minister Pravin Gordhan said.
The National Treasury estimates about half of South African household savings enter the pension and retirement industry and just 10 percent of people can maintain their pre-retirement level of consumption after they stop working. About 6 million workers don’t have employer-sponsored retirement benefits.
“We intend to move progressively towards a mandatory system of retirement for all employed workers,” Gordhan said in his budget speech in Cape Town today. “Households must be encouraged to invest in their future.”
The Cabinet is still considering proposals to establish a compulsory national savings fund, said Ismail Momoniat, a deputy director general in the National Treasury.
The Treasury adjusted taxes on lump-sum withdrawals from retirement funds, increasing the income level bands used to determine the levies by about 10 percent. Taxes on pre-retirement lump-sum withdrawals were last reviewed in 2007, while those on post-retirement benefits were adjusted in 2011.
The government has reached an agreement with the Association of Savings and Investment of South Africa on ways to reduce charges on retirement savings, and draft regulatory reforms will be published soon, Gordhan said.
The Treasury said it will proceed with plans to introduce “tax-preferred saving accounts,” with legislation to be presented to Parliament later this year. While investments won’t qualify for tax deductions, all capital and interest gains will be exempt. Contributions to the funds will be subjected to a lifetime limit of 500,000 rand and 30,000 rand ($2,794) a year.
“The account will allow investments in bank deposits, collective investment schemes, exchange-traded funds and retail savings bonds,” the Treasury said. “Eligible service providers will include banks, asset managers, life insurers and brokers.”
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