Author Topic: New retirement tax laws  (Read 3485 times)

Patrick

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New retirement tax laws
« on: January 14, 2016, 03:05:19 pm »
It's been rather quiet around here about the new retirement annuity/pension fund laws? What does everyone think?

So you're able to put away 27.5% of your income before tax. I think that's huge. If you're paying 42% tax on your earnings it makes a massive difference really quickly.

It'll also be very useful to those have other sources of income. If you've got REITs or a paid up property, your dividends or rent payments are taxed just like income, so putting away 27.5% of everything you earn could actually take you down a tax bracket or two.

On the downside you're not allowed to take it all out at retirement, only a third, and the rest has to go to into an annuity. On the whole, probably not a bad thing for most people, though personally I'd rather not have an annuity and use that cash to increase investments in lower cost index funds.

Also there's a R350k limit, but if you can hit that you're probably not very concerned about your retirement in any case...
« Last Edit: January 14, 2016, 03:08:17 pm by Patrick »

gcr

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Re: New retirement tax laws
« Reply #1 on: January 14, 2016, 03:54:10 pm »
There are a number of matters which I am unhappy with:-
1) You are still permitted to commute 1/3 of your funds into cash - which I believe should not be allowed, in many cases these funds are used to settle debt - house car etc.. I have come across a single person who has commuted funds, paid off debt and then built up the commuted portion that they withdrew. So once again people have eroded their capital. Anybody who turns 50 and doesn't start to map out their route to retirement how they will fund their years in retirement will end up being hugely disappointed in retirement and would need to think of working just to keep the wolf from the door. Furthermore retirement isn't about the first 5 or 10 years but is all about the 20 - 30 years after retirement when inflation will massacre your pension. Those who want to retire and then emigrate to some or other country have yet another mountain to climb in terms of a deteriorating exchange rate - since 2010 the Rand has sunk about 50% to the dollar - thus your pension in a foreign currency would have halved
2) They have not changed the rules on Living Annuities - you still have to withdraw 2.5% per annum as a minimum - I wrote to Treasury and asked that they make provision for a zero withdrawn option on a LA - I don't want/need to live off my LA these funds I want to grow so that the 6% drawing I intend making when I get to 80 will supplement the loss on my pension due to the ravages of inflation

Further if people had behaved responsibly in their employed years, put away funds for their pensions we wouldn't have such massive amounts of funds being set aside for old age pensioners - harsh but its a reality, child grants I feel the same way   
Not everything that counts, can be counted, and, not everything that can be counted counts - Albert Einstein

Orca

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Re: New retirement tax laws
« Reply #2 on: January 14, 2016, 06:32:53 pm »
Off topic but just a correction on @gcr's post.
Not everyone will want to relocate to the USA. Most will go to Europe where the Euro has gained 15% pa over the past 5 years against the ZAR.
To add to that, most of the ZAR loss was due to the emerging market selloff of late and it is oversold. How long will this last?. perhaps a year or 2? Then it will be back to the normal 2.5% pa. A far cry from 50%.
I started here with nothing and still have most of it left.

gcr

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Re: New retirement tax laws
« Reply #3 on: January 14, 2016, 07:43:19 pm »
Off topic but just a correction on @gcr's post.
Not everyone will want to relocate to the USA. Most will go to Europe where the Euro has gained 15% pa over the past 5 years against the ZAR.
To add to that, most of the ZAR loss was due to the emerging market selloff of late and it is oversold. How long will this last?. perhaps a year or 2? Then it will be back to the normal 2.5% pa. A far cry from 50%.
Orca - I googled Standard Banks exchange rates

December 31 2010 and December 31 2015
Pound 10.618                 22.4254
Euro  8.8106                  16.8959

These figures can be disputed but they are from Standard Banks web site, but looking at the figures they appear on the same spreadsheet so I am making the assumption that they are/were accurate
Anybody transferring a pension from SA to Europe, Britain, and USA will be severely prejudiced on transfer   
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Orca

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Re: New retirement tax laws
« Reply #4 on: January 14, 2016, 10:30:07 pm »
My apologies. I re read your post and see the 50% is over a 5 year period and mine was over 1 year.

The USD has gained on all currencies and even the Euro and is now overbought and the ZAR is oversold. I stick to my post with the amendment mentioned here.
 
I started here with nothing and still have most of it left.

gcr

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Re: New retirement tax laws
« Reply #5 on: January 14, 2016, 11:25:02 pm »
Comments noted
Just some numbers to play around with for the Euro
1 Euro to the Rand was as follows on the respective dates

31/12/2012  11.1849
31/12/2013  14.3792
31/12/2014  13.9994
24/08/2015  15.3214
31/12/2015  18.8959

My argument still stands anybody who is receiving a pension based in Rand and is being remitted to a foreign country is more than likely to have suffered significantly in the foreign currency equivalent
The sadness is that this situation is not likely to change very much over the next year or two, but two events may reverse this considerably - that being Pravin Gordhan actually gets a grip on government spending (don't see this happening) February 28th could be an interesting date, and the other is that the ANC lose substantial voter support in the municipal elections. Though a coalition government is not really the answer and brings its own issues in terms of service delivery neglect

But as they say in the classics humans are all opinionated and it's only in marriage that at times one gets it right   

Not everything that counts, can be counted, and, not everything that can be counted counts - Albert Einstein