This document explains the details of the South Africa retirement industry reform, including tax treatment of retirement fund contributions, preservation of retirement savings, traditional life annuity, living annuity and living annuity reforms.

1. Daberistic Financial Services
Creating Financial Security, Prosperity and Wealth
www.daberistic.com
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2. Agenda
• T-Day (taxation reform)
• P-Day (preservation reform)
• Living annuities reform
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3. Daberistic Financial Services
• Authorised financial services provider, FSP #
25477
• “One-stop shop” offering
– Life insurance
– Medical aid
– Investments
– Car and household insurance
– Business insurance
– Funeral plans Funeral plans
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4. Our product providers
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5. T-Day
• Due 1 March 2014
• Affect taxation of retirement fund
contributions
– Employer’s contributions added to taxable income
as fringe benefit
– Individuals allowed 27.5% of the higher of taxable
income or employment income as deduction, for
contributions to pension, provident and
retirement annuity funds
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6. T-Day
– Maximum annual deduction R350,000
– Contributions in excess of the annual cap may be
rolled over to future years
– Any non-deductible contributions will be added to
tax-free lump sum at retirement
– Group risk insurance premiums tax deductible
– Tax-preferred savings and investment accounts in
2015
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7. T-Day
• any new contributions made to a provident fund will
be subject to the same annuitisation rules as pension
funds:
• At least two-thirds of the savings must be used to purchase
a pension at retirement.
• Any provident fund savings made before T-day, and any
investment growth on those savings, will not be subject to
the new pension purchase requirement (i.e. up to 100%
lump sum withdrawal benefit)
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8. P-Day
• Tighter controls on preserving retirement
savings,
– Retirement funds must have default preservation
funds for exiting members
– Must guide members of converting savings into a
regular income after retirement
– allow access savings before retirement during
periods of unemployment
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9. P-Day
• Currently limited to one withdrawal from a
preservation fund before retirement, but the
withdrawal may be 100 percent of your savings.
• New proposal: allow for an income stream in periods of
unemployment, allowing for one withdrawal a year.
• Annual withdrawal formula: the greater of the state old
age grant (R1 260 from April 1) or 10 percent of initial
preservation fund deposit, excluding any portion to
which vested rights apply. Any unused withdrawal
amounts may be carried forward to future years.
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10. P-Day
• retirement fund divorce settlements will be
subject to the proposed new preservation
withdrawal rules allowing for a limited income
stream
• Relax preservation requirements of RA funds
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11. Living annuities
• Flexible retirement income vehicle
– Choice of underlying investment funds
– Withdrawal rate 2.5% to 17.5%
– On death, balance paid to beneficiaries
– No guaranteed return
– No guaranteed income level
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12. Traditional life annuities
• Greater certainties in retirement
– Annuity rates quote by life insurance companies
upfront
– Can choose between level and escalating pensions
– Can choose between single and joint life annuities
– Pension amounts guaranteed
– Can ensure pension payments guaranteed for up
to 20 years
– On death, no balance paid to beneficiaries
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13. Compare annuity products
Level life annuity Escalating life annuity ILLA
25000
20000
15000
10000
5000
0
65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90
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14. Living annuities reform
• Problems with investment-linked living
annuities (ILLAs)
– High costs
– Poor advice
– Wrong investment choices
– High drawdown rates
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15. Living annuities reform
• Collective investment scheme management
companies such as unit trust and exchange
traded fund companies be allowed to sell illas
without registering as a life assurance
company
• Increase competition and bring down costs
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16. Living annuities fees
3.50%
3.00%
2.50%
2.00% Adviser
LISP platform
1.50%
Fund manager
1.00%
0.50%
0.00%
Current Future
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17. What does this all mean for me?
• Get into habit of saving for retirement
• Get into habit of preserving retirement savings
when changing job
• Lower costs -> higher returns on retirement
savings
• Need for good financial advice
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