Now that you know how your day-to-day finances will be affected by the Budget Speech, here's how you can prepare for long term effects.
How will the 2013 budget affect us over the longer term?
Budget is not all about tax. On the long-term side of the Budget we can
look more at the benefits we, as citizens, receive from the Government.
Encouraging household savings
Africans have poor savings habits. We consume all our money and do not
save enough for tomorrow. Not only do South Africans need to save more
to provide for their own futures and their families, but the economy
also requires South Africans to save.
With the high debt levels
and low savings levels we, as a nation, are actually consuming today
what we have not yet earned tomorrow.
In last year’s Budget
Speech the Minister indicated that there would be focus on incentives to
help South Africans save. These products will be introduced from April
2015. As an investor in one of these products you will not pay tax on
the income you earn in the product - whether it is interest, capital
gains or dividends; and you will not be taxed when you withdraw from the
According to the current proposal you will be allowed
to save up to R30 000 per year (with a lifetime limit of R500 000) into
these products and not pay any tax on the return you earn, thereby
enabling many South Africans to make their savings work harder for them.
comments made about retirement reform will not affect us in the
immediate future, but it is important that we understand this, since
after its implementation (which, according to the latest draft proposals
that were published for public comment at the same time as the Budget
speech, will only become effective on or after 2015), it will affect
most of our lives while saving up for retirement as well as the
retirement income that we will eventually receive.
Very few South
Africans are able to retire with sufficient retirement income. There
are many reasons for this, including insufficient contributions and
withdrawing your retirement savings before retirement. In the 2011
Sanlam Benchmark Survey 20% of people indicated that they withdraw their
retirement savings when they left an employer. The concerning aspects
is that 72% of people used it to settle debt and 29% used it to provide
for living expenses.
One of the changes the Minister mentioned
is simplifying and harmonising the retirement systems. For consumers
part of this simplification would mean that we will no longer have to
understand all the complexities and differences between the pension,
provident and retirement annuity funds.
As indicated in last
year’s Budget the proposal is that you will be allowed to deduct up to
27,5% of your income if you contribute this towards your retirement
irrespective of the type of retirement fund into which you invest or
whether the contributions are made by you or your employer. These
deductions will however be limited to a maximum of R350 000 per year.
means that if you earn more than R1, 27 million you will not be able to
get immediate tax relief if you deduct a full 27, 5% contribution, but
this will be rolled-over and allowed against your lump sum or later
There are further proposals around retirement
reform to enable individuals to make provision for adequate income in
retirement. However these proposals still need to be finalised. One of
the major aspects raised in the Budget Speech about retirement reform is
the preservation issue, but any changes in this regard will be widely
consulted prior to finalisation and any changes will be phased in and
will take into account that people have already saved for their
retirement income in a specific manner.
Treasury previously already signalled an intention to start looking at
the taxation of trusts. It is acknowledged that there is a legitimate
use for trusts to provide for minor children and people with
disabilities, but various proposals are being considered to prevent
trusts from being utilised to avoid tax.
Disability and income protection
can provide for yourself in the event of disability by either obtaining
insurance for replacing your income or providing for a lump sum.
Currently different disability and income protection products are
treated differently for tax purposes. It is proposed that all
non-retirement fund disability and income protection policies will be
treated the same, i.e. contributions will not be tax deductible and the
pay-outs will not be taxed.