SIMON BROWN: I’m chatting now with Faeeza Khan, a senior specialist, legal marketing, at Liberty. Folks, we have retirement reform coming in and I know everyone gets stressed and scared when this starts to happen. Truthfully, it’s not half as stressful or as scary. Faeeza, good morning. I appreciate your early morning time.
There are two key changes. There’s the emigration one. We’ll come to that in a moment. And the annuitisation of provident funds, preservation funds and so forth.
If I understand this correctly, it means that on retirement, in funds where you could normally take out 100% in cash this will now be saying, hang on, money after March 1 this year will be subject to the retirement annuity, where you can take a third and then you have to go and buy an annuity. Is that correct – my quick summary?
FAEEZA KHAN: Morning, Simon. Absolutely, your summary is spot on. These changes really affect provident funds, not pension funds, because that’s exactly how pension funds are currently treated, where at retirement you can take one-third as cash, and with the balance, you’ve got to purchase an income. Those changes are now going to be applicable to provident funds, and only monies that accumulate after March 1, 2021. So after T-Day those funds, plus growth, are going to be subject to one-third, two-third splits.
SIMON BROWN: That’s an important point. So if I am say, 51 years old, and I retire in four years, the bulk of my cash, all things being equal, would have been put in before March 1, and therefore will not be subject (to this change), and I will still get that as I expected. So it’s not changing the past, it’s simply changing the future.
FAEEZA KHAN: Yes. And that, I think, has caused a lot of confusion in the field, where clients think that all of their funds are going to be subjected to annuitisation; but that’s not the case. It’s only for funds that accumulate after March 1, and only if you are under age 55.
If you’re over age 55, there’s another difference, because any funds that accumulate after March 1 are also going to be treated as they are currently treated, and you’d be able to commute that full lump sum. But the caveat there is that you’ve got to remain in that provident band until you retire.
SIMON BROWN: Okay. I hadn’t realised that. And, of course, while we can retire at 55, for many of us that’s not what we want to do. We can work potentially a lot longer.
The other one is to preserve and consolidate, and this really is enabling that preservation, that consolidation across a wider range of retirement funds. This is a small tweak, but I think for some members (it’s) probably going to be a fairly important tweak.
FAEEZA KHAN: Absolutely. I think that people need to just be aware of what their options are.
Don’t exit your funds because you think that there are going to be these major changes and that you’re going to be impacted.
It’s important that people speak to their financial advisors, understand what the changes are, and make decisions from that standpoint.
SIMON BROWN: The third one, and I know there’s been a lot of jumping around this, is around emigration. Again, this is only applicable post March 1. If you have already officially emigrated by February 28, no problem. What this says in essence is that after March 1, if you emigrate, you need to be a non-resident, a non-taxpayer in South Africa for three years before you can draw those funds out.
FAEEZA KHAN: Yes. And the emigration rules, I think, have also caused a little bit of havoc. But there are two sides to this coin, because we are moving from the requirement of formal emigration through the South African Reserve Bank to a requirement that says, well, you’ve got to be a South African non-resident for an uninterrupted period of three years or longer. So people who have already emigrated through the South African Reserve Bank are able to access their funds. People who have put in their application to emigrate by February 28, 2021 – and that application must be approved by February 28, 2022 – can also take their funds by using the formal emigration requirements. Anyone who doesn’t get their application in on time would have to wait for the three years. So from that perspective, it takes a little bit longer.
But people who have already been living abroad for the longest time are now in a position to access those funds, whereas they don’t have to now go through a formal emigration process. So they really do end up winning with this change, which is really great for them.
SIMON BROWN: I hadn’t known that. That is great. South Africans are up in arms, (saying): “don’t touch my retirement fund” – terrified of what the government is going to do. I look at these changes, and there are some tweaks and they are going to make some differences for some individuals. But generally, I look at them and I think, these aren’t draconian and these aren’t terrifying at all.
FAEEZA KHAN: No. In my opinion, they are great changes. South Africa comes from a background of a poor savings culture. The annuitisation of provident funds was supposed to come in in 2016, with all of the other tax changes to retirement funds, where retirement funds were being harmonised. Year on year [these changes] have been postponed. So it’s a good thing that it’s coming through.
It forces people to earn an income at retirement, and through retirement assist us with our savings culture, assist us with at least not being a burden on our family or on the state when we do retire, because we at least are going to be forced to get an income with these annuitisation rules.
SIMON BROWN: That’s the point I always make. Please don’t be a burden on your family. Please don’t be a burden on the state. I agree. I think these changes are actually perfectly good.
We’ll leave that there. Faeeza Khan, senior specialist legal marketing at Liberty, I appreciate your early morning.