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Retirement Planning
Friday, May 30, 2014 - 02:16
Government initiative

According to ASISA, 2013 withdrawals from the retirement schemes in the first half of the year (excluding retirement and payment of death claims) amounted to R15 billion. In addition, the Old Mutual Retirement Monitor 2013 found that 61% of members who changed jobs in the past 15 years withdrew some or all of their retirement fund benefits in cash (most taking the full amount in cash).

Finance Minister Pravin Gordhan placed emphasis on the country’s low savings rate in the 2013 October medium term budget. He announced proposals to reform the retirement industry, with a focus on governance, preservation, annuitisation and harmonisation of retirement funds.
Comments Craig Aitchison, Old Mutual Corporate GM of Customer Solutions, “There is a need to put measures in place to improve the country’s saving rate, which will improve local fixed investment and make South Africa less vulnerable to foreign investment, which we have seen can leave the country quickly during times of global volatility. Long-term, a higher savings rate will help stabilise the rand against major currencies.”
He believes that one of the ways to increase the savings culture in SA is to have better defined regulations around encouraging people not to cash in on their retirement savings when leaving their place of employment. “Preservation is a key element to enable a savings culture, and having a firm proposal in pace with regards to preservation of retirement funds will go a long way in ensuring South Africans are encouraged to save for this stage in their lives.”
The Old Mutual Retirement Monitor found that 85% of respondents felt that not having enough money to retire was their greatest retirement concern. He explains that the auto-enrolment proposals by Treasury can effectively address the concerns around our nation’s growing appetite for spending and lack of financial preparation for retirement.
In terms of the government’s “auto-enrolment initiative”, nearly every worker will be required to be signed-up to their company's scheme. Currently only about 50% of employees invest in a retirement fund, yet saving through retirement funds remains an effective vehicle for retirement.
“While tax incentives can encourage high-income earners to auto-enrol, there is a need to offer monetary incentives to very low-income earners. To cushion the impact of the cost of these incentives on SMEs, the government should consider introducing an administration subsidy for the first year.”
To entice low income-earners to save, Aitchison further suggests that government consider paying a small lump sum into these earners’ retirement savings, to be accessed only if the person saves for a set period. “There is a need to determine the size of such a kick-start lump sum and the cost it will have on government revenue. However, even with a modest contribution rate of 3%, auto-enrolment will result in additional savings of more than R20 billion per annum.”
 

Copyright © Insurance Times and Investments® Vol:27.5 1st May, 2014
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