Fact File: Inflation and interest rates

Budget 2022: Impact on retirement funds

In his Budget speech on February 23, Finance Minister Enoch Godongwana did not announce any major changes for retirement funds. However, he did mention a few things of note, including the fact that National Treasury’s proposed “two-pot” system for retirement savings was under consideration.

Below are Budget items pertaining to retirement funds:

● Retirement fund contributions: The limit for deductible contributions to retirement funds remains at 27.5% of the greater of remuneration or taxable income, to a maximum of R350 000 a year.

● Tax on retirement fund lump-sum withdrawals: Rates remain the same for pre-retirement withdrawals and for withdrawals at retirement, according to the SARS tax tables for lump-sum withdrawals from a pension or provident fund.

● Proposed two-pot system: The Budget speech touched on the government's proposed two-pot system for retirement savings, saying more work needed to be done. Michelle Acton, key account manager at Old Mutual Corporate Consultants, says the fact that the Minister has given the green light to the restructuring of the retirement system for individuals to allow for greater preservation and partial access to funds via the two-pot system is welcome.

“More detail is required in terms of understanding the parameters that would allow for early access. This will need to be provided in the draft legislation that will be published for comment towards the middle of the year,” she says.

● Increase in limits for offshore investment and infrastructure: Regulation 28 of the Pension Funds Act stipulates the proportion of retirement fund investments that can be invested in the various asset classes and in offshore investments. A change welcomed by the investment industry was the “harmonisation” of offshore investment limits across investment products.

Andrew Davison, head of advice at Old Mutual Corporate Consultants, says: “One of the unexpected but welcome changes in the Budget was the announcement that the offshore limit for all insurance, retirement and savings funds will be harmonised at 45%, inclusive of the 10% African allowance. This implies that the current Regulation 28 offshore limit of 30% will increase to 35% with a further 10% in Africa outside South Africa. This will provide greater flexibility for retirement funds to access a wider set of opportunities for growth as well as diversification.

“The Minister also provided an update on the changes to Regulation 28 to enable greater investment in infrastructure by retirement funds with this expected to be gazetted into law by March.”

● Improving governance of umbrella funds: The Budget Review says work will also continue on seeking to improve the governance of umbrella funds, which house a number of employers under one “umbrella”. National Treasury has proposed that members of a commercial umbrella fund should elect at least half of the members of the board of trustees.

At present, this is not a requirement for commercial umbrella funds, though it is for stand-alone occupational funds.