This will be beneficial to especially lower income earners who may in the past have been required to pay tax on their lump sum in retirement, even though they weren’t entitled to a deduction while working since their taxable income were below the tax-free threshold.
The adjusted brackets can be seen in the table below.
In his 2014 Budget Speech, finance minister Pravin Gordhan, said government will introduce more initiatives to ensure that South Africans can retire and cut redundant cost from the system.
National Treasury has released a number of discussion papers on retirement reform in the past two years and is moving ahead with its initiatives.
“Legislation has already been passed by Parliament to improve governance over pension and provident funds, and to align the rules and tax treatment of pension and provident funds, while at the same time protecting vested rights.
“We still seek improved coverage and preservation of retirement funds, and lower costs in the system. We are currently consulting within NEDLAC on measures to cover the 6m employed South Africans who do not enjoy access to an employer-sponsored retirement plan. We intend to move progressively towards a mandatory system of retirement for all employed workers,” Gordhan said in his Budget Speech.
In this regard an agreement has been reached with the Association of Savings and Investment of South Africa (Asisa) on initiatives to reduce the level of charges for retirement savings products, Gordhan said.
“Draft regulatory reforms will be published shortly.”
Government will also go ahead with legislation to allow for tax-exempt savings accounts this year as a means to boost household savings.
“Complementing this tax reform, a new top-up retail savings bond will be introduced by the Treasury this year, allowing for regular deposits into a government retail bond. It will also be accessible to community savings groups, such as stokvels. Options for introducing a sukuk retail savings bond are also being explored,” Gordhan said.
The minister believes South Africa has taken significant strides towards the National Development Plan’s target of providing access to financial services to 90% of people within the next decade and a half. Last year just less than 80% of adults were using financial services.
However, Gordhan voiced his concern about the debt levels of households.
“Cabinet has therefore approved a number of measures to assist such households to reduce their debt burden, and to stamp out abusive and fraudulent activities of reckless lenders and unscrupulous debt collectors.
“Working jointly with the Ministers of Trade and Industry and Justice, we will shortly commence actions against abusive and unsustainable practices.”