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Cape Town - In the face of rising interest rates and inflation, and the emphasis of savings in the October's mini budget, the National Budget will put savings firmly on the 2014 financial agenda, said Old Mutual's Craig Aitchison.
He said the emphasis Finance Minister Pravin Gordhan placed on the country’s low savings rate in the mini budget in October, was an indication that the budget, to be delivered later on Wednesday is expected to bring clarity to how the government intends to improve these levels.
Aitchison said he expected the budget to address the government’s commitment to accelerated retirement reform, as well as its progress on 2013 retirement proposals such as the auto-enrolment initiative.
In his 2013 Budget address Gordhan announced proposals to reform the retirement industry, with a focus on governance, preservation, annuitisation and harmonisation of retirement funds.
“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,” said Aitchison.
He said over the long term, a higher savings rate will help stabilise the rand against major currencies.
"We expect to see an increase in proposals to improve contributions to retirement funds through tax changes, preservation of retirement savings, and tax–incentivised products in the 2014 Budget, which will enable a long-term savings culture in the country.
"We also expect the Minister to have firm dates for the introduction of the tax-incentivised products and the tax amendments of retirement funds.”
According to Asisa (Association for Savings & Investment SA), 2013 withdrawals from the retirement schemes in the first half of the year (excluding retirement and payment of death claims) amounted to R15bn.
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).
Aitchison believed 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.
Aitchison explained that the auto-enrolment proposals by the treasury can effectively address the concerns around the nation’s growing appetite for spending and lack of financial preparation for retirement.
He said it is likely that incentives will be introduced to encourage retirement fund savings, as last year the treasury acknowledged employers’ increasing role and responsibility for the overall financial wellbeing of their workers.
"This role extends to how they design their retirement funds," he said.
“While tax incentives can encourage high-income earners to auto-enrol, there is a need to also 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 suggested that the 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 R20bn per annum.”
He said the emphasis Finance Minister Pravin Gordhan placed on the country’s low savings rate in the mini budget in October, was an indication that the budget, to be delivered later on Wednesday is expected to bring clarity to how the government intends to improve these levels.
Aitchison said he expected the budget to address the government’s commitment to accelerated retirement reform, as well as its progress on 2013 retirement proposals such as the auto-enrolment initiative.
In his 2013 Budget address Gordhan announced proposals to reform the retirement industry, with a focus on governance, preservation, annuitisation and harmonisation of retirement funds.
“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,” said Aitchison.
He said over the long term, a higher savings rate will help stabilise the rand against major currencies.
"We expect to see an increase in proposals to improve contributions to retirement funds through tax changes, preservation of retirement savings, and tax–incentivised products in the 2014 Budget, which will enable a long-term savings culture in the country.
"We also expect the Minister to have firm dates for the introduction of the tax-incentivised products and the tax amendments of retirement funds.”
According to Asisa (Association for Savings & Investment SA), 2013 withdrawals from the retirement schemes in the first half of the year (excluding retirement and payment of death claims) amounted to R15bn.
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).
Aitchison believed 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.
Aitchison explained that the auto-enrolment proposals by the treasury can effectively address the concerns around the nation’s growing appetite for spending and lack of financial preparation for retirement.
He said it is likely that incentives will be introduced to encourage retirement fund savings, as last year the treasury acknowledged employers’ increasing role and responsibility for the overall financial wellbeing of their workers.
"This role extends to how they design their retirement funds," he said.
“While tax incentives can encourage high-income earners to auto-enrol, there is a need to also 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 suggested that the 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 R20bn per annum.”
