One of the more pertinent topics to emerge during the recent National Payroll Week was Retirement Reform and the fact that changes impacting retirement fund management were announced in 2013 and come into effect on 01 March 2015. Despite this forewarning, there are many who have yet to consider implementing a change management process to deal with the potential impact on staff.
The changes will affect the way retirement funds are handled by employers (whilst people are in their employ) and by the government (department of finance) once people retire.
It is a scenario that has grabbed the attention of key role players within the payroll administration industry including the Payroll Author’s Group (PAG) and the South African Payroll Association (SAPA). These organisations have held information sessions on the subject and, as a result, certain factors have come to light.
For example, Teryl Schroenn, CEO at Accsys, along with Cathie Webb, COO at Accsys, have ascertained that many people are not aware of the significance of the 2015 date.
“There are a number of changes that will have to be considered and dealt with. There are steps that will have to be taken, including taking a closer look at investing additional take home pay towards retirement,” Schroenn explains.
Changes afoot
In a recent blog posted by Schroenn, she outlined the changes as: –
* Revised contribution incentives for retirement savings (up to 27½% of remuneration or taxable income – whichever is the greater, or up to a maximum of R350 000);
* Valuation of defined benefits contributions (the employer contribution becomes a fringe benefit, according to a legislated formula, and which will be calculated by fund actuaries, for each component of the fund);
* Alignment of Provident fund annuities, post retirement (i.e. from 1st March contributions to Provident funds are tax-deductible like Pension fund contributions, and post retirement the Provident payments become taxable);
* Exemption of non-deductible retirement contributions;
* Retirement fund benefit pay-outs (provident fund members will be required to annuitise upon retirement for funds accumulated after 1st March 2015);
* Retirement lump sum taxables (changes to the tax rates applicable to pre-retirement and on retirement lump sum withdrawals);
* Personal insurance (life and disability premiums no longer tax deductible, and become tax free on pay out);
* Cross-border retirement savings (laws regarding contributions to local and foreign funds still to be reviewed), and;
* Tax preferred savings accounts (a paper was open for comment until end June. The idea is to promote savings, and to allow specified contributions, presumably with tax incentives).
Schroenn believes now is the time for businesses to be proactive and take appropriate action. The recommendation by Cathie is for businesses to take the following steps:
* Ensure that your Fund administrators are clear on the changes, and that they discuss these with your management, and Fund Committee;
* If on a Provident fund, calculate the difference in take home pay that your staff will enjoy from 1st March 2015
* Arrange for an information session for staff;
* Recommend that the additional take home pay be invested for retirement – after all, they are used to not having this amount monthly, and every cent invested early reaps the benefits of compound growth.
The above is intended simply as a guide and general advice. Payroll experts at Accsys continue to try and provide the market with helpful information – notably the need to save as much as possible to ensure a sufficient amount is available upon retirement, at a time when salaries are no longer a renewable resource.
