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South Africa: Reduced Retirement Charges could Double Pensioner's Benefit
Source: www.sanews.gov.za
Source Date: Monday, July 15, 2013
Focus: Knowledge Management in Government
Country: South Africa
Created: Jul 15, 2013

Releasing the discussion paper - titled “changes in South African Retirement Schemes" - McCarthy told journalists that charges imposed on pension fund members were very high.

He said that the retirement fund industry needed to first accept that this was a problem in order to make a constructive input.

“Charges significantly reduce benefits to members, and could reduce retirement income by more than 50%.

“If you can reduce your recurring charges from 3.5% per annum to half a % per annum, either you can get twice as much when you retire or you can get the same benefit with contributions which around half as large.

“And very few people understand the large impact that small recurring charges have on the size of your benefit for people who are saving for a very very long time,” McCarthy said.

Prior to the release of this discussion document, the National Treasury published four other technical discussion papers titled “Enabling a better income in retirement income”; “Preservation, portability and uniform access to retirement income” (both in September 2012); and in October 2012 – “Incentivising non-retirement savings” and “Improving tax incentives for retirement savings”.

Last Friday, the National Treasury published the “2013 draft Taxation Laws Amendment Bill” for public comment, which began to legislate some of these reforms.

The latest discussion paper deals with charges that are imposed on members during accumulation phase, or before retirement.

The release of the latest paper follows Finance Minister Pravin Gordhan’s meeting with the chief executive officers of service providers in the retirement fund industry in June where he explained the 2012 and 2013 Budget Retirement Reform proposals.

The National Treasury said that the primary objective of these proposals for both the industry and the Government is to ensure that the savings and investment industry serves the interest of customers, in line with the principles of the Treat Customers Fairly (TCF) initiative.

McCarthy said the charges matter was not only a South African concern, but a subject of international debate.

He said while the reforms could impact on the profits of various service providers, the National Treasury hoped that the retirement fund industry would give constructive input to the discussion papers which would result in a “win-win solution”.

McCarthy also said some of the draft proposals would be to empower the pension funds regulator, who takes office on 1 August, to monitor costs and to benchmark charges on retirement income to be in-line with international standards.

Govt to assist SA household in savings

Meanwhile, Ismail Momoniat, the deputy director-general of tax and financial sector policy, said household savings in South Africa revolved around the 0% line, which is why the Government saw a need to produce the five discussion papers not only to improve their savings, but to also help them get into the culture of saving.

There will be a formal public consultation process on the draft proposals in the latest paper, which closes on 30 September 2013.

The National Treasury said after the consultation process, firmer policy proposals will be developed, leading to a draft legislation, which is expected to reach Parliament in late 2014.
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