Following the National Budget Speech by Finance Minister Pravin Gordhan on Wednesday, 27 February 2013, executive committee members of the Financial Intermediaries Association of Southern Africa (FIA) have provided some commentary around the announcements.
The 2013 Budget announced that the medical schemes tax credit was increased from R230 to R242 for each of the taxpayer and the first dependent and from R154 to R162 for each additional dependant. “The inflation-linked increase in the medical schemes tax credit is the minimum increase the FIA would have expected,” says Gregory Setzkorn, Chairman of the Healthcare Committee at the FIA. “While individual taxpayers will no doubt enjoy the additional tax relief the concession does not go far enough to encourage new entrants to the medical schemes industry.”
There is good news for the over-65s. “Taxpayers 65 and older may claim as a deduction all qualifying medical expenditures not covered by their respective medical schemes,” says Setzkorn. “They can also claim a deduction for medical scheme contributions exceeding four times the amount of the medical schemes tax credits.”
Gavin Came, Chairman of the Financial Planning Committee of the FIA, welcomed the Retirement Reform update that was published alongside the 2013 Budget. “The note sets out National Treasury’s latest thinking on a wide range of retirement reform issues including the taxation of retirement fund contributions and withdrawals, preservation of accumulated retirement savings and the treatment of non-retirement savings,” says Came. “It is now up to industry stakeholders to further engage with Treasury on these proposals by the stated 31 May 2013 deadline. The FIA looks forward to representing the views of its member intermediaries to government in this regard”.
“Reforming South Africa’s retirement landscape is a difficult balancing act,” he adds. “National Treasury has to both accommodate individuals that have been saving for many years under the old dispensation while at the same time recognising the urgency of the reform process”.
“The FIA believes that Treasury’s ‘2015 or later’ approach to many of its proposals, particularly where pre- and post-retirement preservation are concerned, make sense given the amount of stakeholder consultation that still has to take place”.
Pieter Cronjé, Chairman of the Employee Benefits Committee at the FIA, comments on Employee Benefit related announcements:
Tax deductibility of Contributions. The FIA supports the harmonisation of contributions towards different types of retirement funds and is comfortable with the overall caps and allowance for the rollover of non-deductable contributions. The FIA again wants to reiterate the danger of contribution caps per individual on defined benefit arrangements.
Change to Provident Funds. The FIA welcomes the protection of vested rights for provident fund members older than 55 and the retention of the ability to withdraw the capital value and growth thereon subsequent to implementation of the changes.
Means Test. The proposal to remove the means test with corresponding adjustments to the rebates is welcomed by the FIA.
Preservation. The FIA supports preservation but cautions that vested rights must be protected in order to prevent a situation where members start to withdraw their retirement benefits because they are afraid that access will be restricted at some future date.