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National Health Insurance
Healthcare is an important benefit provided by the state to its citizens and in the budget the Minister commented on the improvement to the health infrastructure. More money is to be spent on nursing colleges and the rebuilding of 5 tertiary training hospitals, to the benefit of all South Africans.
In the context of National Health Insurance (NHI), the Minister spoke about some of the interim plans to build towards NHI.
He shared no new information relating to NHI funding, and the expectation therefore remains that this will be funded from an increase in VAT, payroll taxes of employers or additional tax on individuals, or a combination of these. These proposals will only be published later in the year, but what it boils down to is that through some or other mechanism individuals will contribute more in total taxes to help fund the NHI system.
Encouraging household savings
South Africans are not good at saving. We consume all our money and do not save enough for tomorrow. Not only do we need South Africans to save more to provide for their own future and their families, but the economy also needs us to save.
With the high debt levels and the low savings levels we, as a nation, are consuming today what we have not yet earned tomorrow.
Currently there are not enough incentives to save and in the budget speech the Minister proposed new savings mechanisms to help us save: As an investor in one of these products you will not pay tax on the income you earn in the product – whether it be interest, capital gains or dividends – and you will not be taxed when you withdraw from the product. This is still a proposal and a discussion document will be published in May 2012, and the product will be available from April 2014. A mechanism which enables you to save up to R30 000 per year up to a cumulative lifetime limit of R500 000, without paying tax on the returns you earn, will surely enable many South Africans to make their savings work harder!
Retirement reform
During last year’s budget speech the Minister already demonstrated the intention to simplify the retirement environment. For consumers, it means less hassle to understand all the complexities and differences between pension, provident and retirement funds.
One of these simplification measures with regard to the retirement space is to change the workings of the tax system between the different retirement systems.
It is proposed that these changes be implemented with effect from 1 March 2014. If you’re under 45 years of age, you can deduct up to 22,5% of your income if you contribute this towards your retirement –irrespective of whether you are saving in a pension or provident fund, and irrespective of whether you or your employer makes the contribution. An encouraging aspect is that, for people 45 years of age and older, there is now an allowance for a greater deduction of up to 27,5% of their income. This provides for people who are closer to retirement and need to contribute more, and who may not have contributed enough in their earlier working lives. Many South Africans leave saving for retirement too late and this additional amount will assist South Africans to make up the shortfall.
These deductions will, however, be limited to a maximum annual deduction of R250 000 for people younger than 45 and R300 000 for people older than 45.
This means that if you are younger than 45 years, earn more than R1,1 million income and contribute at 22,5%, you will not be able to deduct your total contribution to the extent that it exceeds the cap of R250 000.
There are further proposals in the budget speech around retirement reform to assist individuals to be able to receive an adequate income in retirement, however these proposals still need to be finalised. A major retirement fund issue addressed in the budget speech centres on funds preservation. Minister Gordhan suggests that we consider ways to limit people’s ability to withdraw money from their retirement savings.
His concern, essentially, is that people are inclined to withdraw their retirement savings before they actually reach retirement, with the result that – when they do reach retirement – they don’t have sufficient savings to provide them with an adequate income during their retirement years.
Findings in the Sanlam 2011 Benchmark survey showed that 20% of people indicate that they withdraw their retirement savings when they leave a job and move to another employer. The concern here is that, in this context, 72% of people used their retirement savings to settle debt and 29% used it to provide for living expenses.
Retirement reform will affect not only how we all save for retirement, but also the income we will receive during retirement. Proposals will be made during this year and changes will only follow later.
Partnership was a strong theme of the 2012 budget and the Minister made the point repeatedly that, in order for South Africa to effectively address inequality and poverty, a partnership between government and the private sector was critical.
Click here to read the more on what the Budget Speech means for you.
Healthcare is an important benefit provided by the state to its citizens and in the budget the Minister commented on the improvement to the health infrastructure. More money is to be spent on nursing colleges and the rebuilding of 5 tertiary training hospitals, to the benefit of all South Africans.
In the context of National Health Insurance (NHI), the Minister spoke about some of the interim plans to build towards NHI.
He shared no new information relating to NHI funding, and the expectation therefore remains that this will be funded from an increase in VAT, payroll taxes of employers or additional tax on individuals, or a combination of these. These proposals will only be published later in the year, but what it boils down to is that through some or other mechanism individuals will contribute more in total taxes to help fund the NHI system.
Encouraging household savings
South Africans are not good at saving. We consume all our money and do not save enough for tomorrow. Not only do we need South Africans to save more to provide for their own future and their families, but the economy also needs us to save.
With the high debt levels and the low savings levels we, as a nation, are consuming today what we have not yet earned tomorrow.
Currently there are not enough incentives to save and in the budget speech the Minister proposed new savings mechanisms to help us save: As an investor in one of these products you will not pay tax on the income you earn in the product – whether it be interest, capital gains or dividends – and you will not be taxed when you withdraw from the product. This is still a proposal and a discussion document will be published in May 2012, and the product will be available from April 2014. A mechanism which enables you to save up to R30 000 per year up to a cumulative lifetime limit of R500 000, without paying tax on the returns you earn, will surely enable many South Africans to make their savings work harder!
Retirement reform
During last year’s budget speech the Minister already demonstrated the intention to simplify the retirement environment. For consumers, it means less hassle to understand all the complexities and differences between pension, provident and retirement funds.
One of these simplification measures with regard to the retirement space is to change the workings of the tax system between the different retirement systems.
It is proposed that these changes be implemented with effect from 1 March 2014. If you’re under 45 years of age, you can deduct up to 22,5% of your income if you contribute this towards your retirement –irrespective of whether you are saving in a pension or provident fund, and irrespective of whether you or your employer makes the contribution. An encouraging aspect is that, for people 45 years of age and older, there is now an allowance for a greater deduction of up to 27,5% of their income. This provides for people who are closer to retirement and need to contribute more, and who may not have contributed enough in their earlier working lives. Many South Africans leave saving for retirement too late and this additional amount will assist South Africans to make up the shortfall.
These deductions will, however, be limited to a maximum annual deduction of R250 000 for people younger than 45 and R300 000 for people older than 45.
This means that if you are younger than 45 years, earn more than R1,1 million income and contribute at 22,5%, you will not be able to deduct your total contribution to the extent that it exceeds the cap of R250 000.
There are further proposals in the budget speech around retirement reform to assist individuals to be able to receive an adequate income in retirement, however these proposals still need to be finalised. A major retirement fund issue addressed in the budget speech centres on funds preservation. Minister Gordhan suggests that we consider ways to limit people’s ability to withdraw money from their retirement savings.
His concern, essentially, is that people are inclined to withdraw their retirement savings before they actually reach retirement, with the result that – when they do reach retirement – they don’t have sufficient savings to provide them with an adequate income during their retirement years.
Findings in the Sanlam 2011 Benchmark survey showed that 20% of people indicate that they withdraw their retirement savings when they leave a job and move to another employer. The concern here is that, in this context, 72% of people used their retirement savings to settle debt and 29% used it to provide for living expenses.
Retirement reform will affect not only how we all save for retirement, but also the income we will receive during retirement. Proposals will be made during this year and changes will only follow later.
Partnership was a strong theme of the 2012 budget and the Minister made the point repeatedly that, in order for South Africa to effectively address inequality and poverty, a partnership between government and the private sector was critical.
Click here to read the more on what the Budget Speech means for you.
