Retirement planning opportunities in flux
26 February 2015
Posted by: Author: BDO
The 2015 budget has referred to various changes
which will affect retirement planning opportunities for individuals.
publicised changes to taxation of contributions to retirement funds was due to
take effect as from 1 March 2015 but had been postponed during the past year to
1 March 2016 ( i.e. the 2017 tax year). It appears as if the proposals will
indeed take effect as from 1 March 2016:
o Contributions to retirement funds will be increased
to 27,5 per cent of the greater of taxable income or remuneration for the year
o Contributions will be capped at R350 000 per tax
In 2008 the
upper age limit of 70 for membership of a RA was removed, enabling members to
remain invested and keep contributing to RA funds for an indefinite period.
This provided attractive tax planning opportunities, as investors could remain
invested in RAs without having to trigger withdrawals which may have been
subject to income tax. This also provided estate planning opportunities, as RA
funds are excluded from a dutiable estate upon death.
To limit these tax planning opportunities, it is
now proposed that a maximum age be re-introduced at which withdrawals may be
taken. This will affect income tax and estate planning for many Retirement Fund
maximum marginal tax rate for individuals' taxation has been increased to 41
per cent, the maximum tax rate for Retirement Fund lump sum withdrawals has
remained at 36 per cent, widening the gap in tax rates applicable at
retirement. Because of the differentials in these tax rates, careful planning
is required when electing the retirement lump sum withdrawal at retirement.
For high net
worth individuals, there has been a tax planning opportunity to avoid estate duty
by transferring assets into a retirement annuity before death, which excludes
the assets in the Retirement annuity from the estate duty calculation. Changes
are proposed to eliminate the estate duty avoidance.
While retirement funds remain a very attractive
mechanism for accumulating savings in a tax efficient manner, proposed changes
call for the structure of many retirement plans to be revisited. In this
regard, it is advised to contact your SAIT tax professional.
This article first appeared on bdo.co.za