What will Pravin announce in this year’s budget?
On 27 February, finance minister Pravin Gordhan will announce the Budget Speech for this coming tax year. The question on most HR professionals’ lips is: “What will he announce about employee benefits?”
We expect Minister Gordhan to confirm the proposed retirement reform.
This is a key project for National Treasury, which culminated in a series of discussion papers late last year. What emerged is just how frustrated government is by the cost and complexity of retirement saving, and by the “systematic irrationality” of savers, who start too late, contribute too little and withdraw too soon.
Treasury intends to make the system simpler by limiting choice and flexibility, anticipating that members will then save more, require less advice and earn a higher return.
Controversial issues in the retirement space include:
- Compulsory preservation of retirement funds before retirement;
- Doing away with lump sum withdrawals from provident funds at retirement; and
- Capping tax-free contributions to retirement funds, for people under 45, at R250 000.
The proposals are well-meaning, but when you are trying to balance economical, fiscal and political considerations, there will always be an element of compromise. Affected parties - particularly the investment industry and trade unions - will lobby to protect their own interests.
So we wait to see how their response to the discussion papers will shape the proposed reforms. Our fear is that some of the proposals, e.g. on compulsory preservation, will be diluted while others, such as the contribution caps and phasing out the interest exemption, will be pushed through and discourage saving.
