Picture: THINKSTOCK
Picture: THINKSTOCK

THE imminent prospect of a much simpler pension system should be welcomed by retirement fund contributors and the wider retirement industry, Imara Asset Management SA MD Lara Warburton said on Tuesday.

Proposals to do away with different tax treatments for different retirement products will assist the vast majority of those planning for retirement, she said.

The proposals are outlined in the draft Taxation Laws Amendment Bill — due to be aired at parliamentary hearings soon, and likely to be implemented on March 1 2015.

"Hopefully, the proposals will become law and we will have a pension system that is simpler to administer and easier to explain to clients. The proposed system will also encourage higher levels of tax-efficient saving ahead of retirement," Ms Warburton said.

"The intentions of Treasury and our legislators are praiseworthy and will usher in a new era of retirement saving and tax planning for those with the foresight to provide for later life."

Different tax deductions apply to pension, provident and retirement annuity (RA) funds. Under new proposals, a standardised tax deduction will apply.

To promote a culture of prudent provision, the ceiling on tax deductibility may soon be raised to 27.5% of taxable income, regardless of the taxpayer’s age.

The contribution ceiling on RAs is limited to 15% of nonretirement funding income — discouraging people who build their own retirement nest-egg from stepping up their contributions.

Now contributors to all three types of pension product can achieve the same level of deductibility. This is especially beneficial to the self-employed who do not have access to company pension schemes, and to those who change jobs regularly.

In cash terms, the proposals limit the annual tax deduction to a maximum of R350,000.

Ms Warburton said this would affect a small proportion of those providing for retirement — people earning upwards of R1.3m a year. "The proposals create scope for improving the effectiveness of individual provision in numerous ways. Likely implementation of the changes may be more than a year away, but it is advisable to re-examine your retirement provision and planning in plenty of time rather than get caught in a last-minute rush," she said.