South Africa will introduce laws to regulate the retirement industry later this year as it seeks to encourage savings, Finance Minister Pravin Gordhan said.
Companies must identify funds for exiting members to preserve their savings when they change jobs, Gordhan said in his budget speech in Cape Town today. Funds will also be required to assist members to convert their savings into regular income after retirement.
“Tax-preferred savings and investment accounts will be introduced in 2015,” Gordhan said. “The tax treatment of pension, provident and retirement annuity funds will be simplified and harmonized.”
About half of the nation’s household savings enter the 2.4 trillion rand ($272 billion) pension and retirement industry and more money has been withdrawn from the system in the past few years than contributed, according to the National Treasury. It estimates only about 10 percent of South Africans are able to maintain their pre-retirement level of consumption after they stop working.
Planned changes include giving provident fund members a tax deduction of 27.5 percent of their contributions, capped at 350,000 rand a year. The same deduction limits will be applied to contributions to pension and retirement annuity funds by individuals and their employers.