Newsletter Feb 2020

NFMW-greetings

Members have raised concerns regarding prescribed assets and what impact this could have on their retirement savings. We communicated on this in a previous mailer and to date there have not been any further developments. There is still much uncertainty on whether and how prescribed assets would be implemented and with government calling for more discussion and no policy papers published yet, it is still too early to say how, when and if the state will proceed with prescribed assets.

Finance Minister, Tito Mboweni stated in his 2020 budget speech that unclaimed benefits in retirement funds and the Guardian's Fund are being considered for the funding of infrastructure. Government plans to introduce legislation later this year to centralise these funds, reportedly in excess of R42 billion, and to establish a central registry of all members of retirement funds. No further detail has been provided and we anticipate further industry engagement in this regard. Again, please note that this has no impact on active members' retirement savings.Other announcements included in the budget speech, applicable to the retirement fund industry included:

The annuitisation of provident funds that is scheduled to take place on 1 March 2021.

Government and NEDLAC have agreed to proceed with the reform related to the harmonisation of all retirement funds and further steps will be taken to ensure the development of annuity products more suitable for the low-income market. Further reforms will include improving the oversight and governance of commercial umbrella funds, fund consolidation and auto-enrolment.

Compulsory annuitisation of retirement benefits from provident funds and provident preservation funds will apply from 1 March 2021. Members will not be required to annuitise contributions that were made to their funds before the implementation date (1 March 2021) and can therefore still access retirement benefits accumulated up to this date in a lump sum. Remember that members' vested rights and accumulated benefits are protected.

There was no tax introduced on fund income/investments. No changes in lump sum tax tables

There have been no changes to the lump sum tax tables for retirement and withdrawal benefits. The contribution deduction limit of 27.5% of remuneration or taxable income, capped at R350 000 also remains unchanged.

We want to again request that members do not make any rash financial decisions if they have any concerns regarding their retirement savings, and they should rather contact the fund for further clarity. Members cashing out their savings will not only pay significant amounts of unnecessary tax, but will also lose out on the growth on their savings, lose the benefits they enjoy as members (read article below) and will need to save significantly more in future if they wish to safeguard their standard of living in retirement.

Remember, we are always here to help if you need any information or assistance with any fund-related matter.

Kind regards
Sean Samons
Principal Executive Officer

Retirement Funds - How do you benefit?

The fund's primary objective is to provide benefits for its members on their retirement or withdrawal and for their dependants or nominees in the event of the member's death. Generating investment returns for members is important to achieve this goal, but this is just one of the benefits of being a member of a retirement fund.

Here are some of the benefits that are worth taking note of:

Total contributions paid

The total monthly contributions made towards the fund are between 7.5% and 9% member contributions and 18% employer contributions on the main fund (Category C), dependent on the conditions of service. This is a total of 27% of pensionable salary, compared to the average contribution rate of a member in the private sector which is usually between 5% to 15%, with the employer deciding on the percentage contributions they want to contribute.

Tax deductibility on contributions

The contributions made to the fund are tax deductible, up to 27.5% of remuneration or taxable income, capped at R350 000. This lowers the amount of tax members pay on their annual taxable income and translates to more take-home pay. Members also have the option to enhance their retirement savings by making Additional Voluntary Contributions towards the fund.

Tax exemption applies while the retirement savings remain in the fund

No tax on interest earned is payable
No capital gains tax is payable
No dividend withholding tax is payable
Members only pay tax when they withdraw their benefit from the fund. There are however other investment vehicles available to members to minimise the amount of tax payable on exit and to preserve their retirement savings.

No estate duty on members' retirement savings

No estate duty is payable on a members' death benefit, which means the full benefit (multiple as per the member's risk cover option elected x annual pensionable salary + fund credit) is payable to the member's financial dependants and nominees in terms of Section 37C of the Pension Funds Act.

Members' retirement savings are protected

The fund is only allowed to make certain deductions from a member's retirement savings in terms of Section 37D of the Pension Funds Act e.g. compliant divorce grant payments and any amount outstanding in respect of housing loans which the fund issued surety for. The members' retirement savings are therefore generally protected from creditors.

Less towards costs and more towards retirement savings

The costs paid in the fund are significantly lower compared to a savings vehicle outside the fund. After retirement the post-retirement products offered by the NFMW provide members with the opportunity to manage their retirement savings. The major advantage is a cost benefit, as the management fees are significantly lower compared to the products available from external providers.

It pays to stay

With the exception of the tax relief of a higher rebate at retirement i.e. R500 000 at retirement (55 years and older) vs. only R25 000 at resignation, it pays to stay in the fund as long as possible. The longer you save, the greater the benefit payable when you end service, especially during the last few years before your retirement, when contributions are higher because of salary increases and you will be earning interest on a larger fund credit.

These are just some of the benefits of being and remaining a member of the fund. For more information on the NFMW benefits and services please click on the respective brochures below.