Financial institutions have welcomed the introduction of tax free savings accounts (TFSA) as a means to curb over-indebtedness among consumers and to encourage savings.Banks and other financial institutions such as Old Mutual and Sanlam have introduced savings and investment products for their various target markets following Finance Minister Nhlanhla Nene’s introduction of TFSA during his budget speech earlier this year.
The TFSA regulations, which took effect on March 1 2015, are meant to complement efforts to encourage consumers to save enough for retirement.
Consumers who save up to R30000 during any year and R500000 over their lives will be able to take full advantage of the tax-free aspects of the regulations.
Over time the balance in these accounts may exceed the R500000 limit due to accumulated earnings and capital gains, National Treasury said.
The head of product development at PSG Wealth, Rupert Giessing, described the new regulations as a “milestone”, saying such packages have been available in the UK and the USA for a long time.
Chief strategist at the South African Savings Institute (Sasi) Gerald Mwandiambira said TFSAs would offer an incentive to save, but cautioned the increase in individual tax rates coupled with the 80.5c a litre increase in the fuel levy in the coming financial year, would constrain consumers’ ability to save and invest.
“Sasi notes all these developments will reduce the ability to save.
“We hope savings’ behaviour will be shifted as it has become clear saving needs to be a priority for all South Africans. We do, however, hope any debt relief offered in future must have a compulsory savings element to shift attitudes and behaviour. Such a trade-off we would welcome.”
General manager of savings and investments at Old Mutual Emerging Markets Richard Treagus said the new legislation initiated by National Treasury should be welcomed by all South Africans.
“We know from the findings of the 2014 Old Mutual Savings and Investment Monitor that South Africans do not save enough, even though as many as 80% of respondents indicated they were keen to learn how to save.
“The good news for them is the new tax free savings regulations will make it easier, simpler and more attractive to save.”
Head of retail banking at Standard Bank Sibongiseni Ngundze quoted World Bank data which in 2012 showed China’s gross saving rate was 51%, India and Russia’s 30%, Brazil’s 15% and South Africa’s only 14.2% and has since worsened to 13.5%.
The benefits for consumers saving through TFSAs is the growth on savings, whether in the form of interest, dividends or capital gains, will not be taxed, maximising the opportunity for compounding growth, National Treasury said. — siyam@dispatch.co.za
Advice to keep fees down
Financial services providers have highlighted the pitfalls of tax-free savings accounts.
Standard Bank’s Sibongiseni Ngundze cautioned that providers and customers needed to monitor the limits of the new accounts closely, as any additional amounts above the R30000 individual annual limit would be taxed at 40%, while any withdrawals and inter-account transfers would attract fees of up to R85.
“We certainly don’t want to see customers penalised, and want to ensure they are fully aware of the risks of breaching the limits, or withdrawing money.”
No ATM withdrawals, card transactions or payments will be allowed and the R30000 benefit applies at an individual level across all investments.
“However, they can build up to the threshold during the course of a year by, for example, putting as much as they can afford into their account. This is why Standard Bank is allowing minimum deposits of R250,” said Ngundze.
According to the regulations, customers may not transfer between providers prior to March 1 2016, due to further clarity required in the reporting and management of these funds.
“There is a big gap in South Africa to encourage savings, as many people get to the end of their working careers and just haven’t done enough. So the idea is to give an incentive at some kind of level that makes it accessible,” said Ngundze.
Old Mutual’s Richard Treagus said customers must consider estate planning and nominate beneficiaries to avoid estate process delays and executor fees.
Sanlam Retail Investments head Quaniet Richards said customers needed to declare amounts of savings on behalf of their minor children in their tax return.
“You can save on behalf of your children and by doing this you will be using part of their tax-free allowance, which limits their ability to save for themselves via this type of product later on,” said Richards. — Siya Miti
New products to maximise growth
The TFSA regulations, which took effect on March 1 2015, are meant to complement efforts to encourage consumers to save enough for retirement.
Consumers who save up to R30000 during any year and R500000 over their lives will be able to take full advantage of the tax-free aspects of the regulations.
Over time the balance in these accounts may exceed the R500000 limit due to accumulated earnings and capital gains, National Treasury said.
The head of product development at PSG Wealth, Rupert Giessing, described the new regulations as a “milestone”, saying such packages have been available in the UK and the USA for a long time.
Chief strategist at the South African Savings Institute (Sasi) Gerald Mwandiambira said TFSAs would offer an incentive to save, but cautioned the increase in individual tax rates coupled with the 80.5c a litre increase in the fuel levy in the coming financial year, would constrain consumers’ ability to save and invest.
“Sasi notes all these developments will reduce the ability to save.
“We hope savings’ behaviour will be shifted as it has become clear saving needs to be a priority for all South Africans. We do, however, hope any debt relief offered in future must have a compulsory savings element to shift attitudes and behaviour. Such a trade-off we would welcome.”
General manager of savings and investments at Old Mutual Emerging Markets Richard Treagus said the new legislation initiated by National Treasury should be welcomed by all South Africans.
“We know from the findings of the 2014 Old Mutual Savings and Investment Monitor that South Africans do not save enough, even though as many as 80% of respondents indicated they were keen to learn how to save.
“The good news for them is the new tax free savings regulations will make it easier, simpler and more attractive to save.”
Head of retail banking at Standard Bank Sibongiseni Ngundze quoted World Bank data which in 2012 showed China’s gross saving rate was 51%, India and Russia’s 30%, Brazil’s 15% and South Africa’s only 14.2% and has since worsened to 13.5%.
The benefits for consumers saving through TFSAs is the growth on savings, whether in the form of interest, dividends or capital gains, will not be taxed, maximising the opportunity for compounding growth, National Treasury said. — siyam@dispatch.co.za
Advice to keep fees down
Financial services providers have highlighted the pitfalls of tax-free savings accounts.
Standard Bank’s Sibongiseni Ngundze cautioned that providers and customers needed to monitor the limits of the new accounts closely, as any additional amounts above the R30000 individual annual limit would be taxed at 40%, while any withdrawals and inter-account transfers would attract fees of up to R85.
“We certainly don’t want to see customers penalised, and want to ensure they are fully aware of the risks of breaching the limits, or withdrawing money.”
No ATM withdrawals, card transactions or payments will be allowed and the R30000 benefit applies at an individual level across all investments.
“However, they can build up to the threshold during the course of a year by, for example, putting as much as they can afford into their account. This is why Standard Bank is allowing minimum deposits of R250,” said Ngundze.
According to the regulations, customers may not transfer between providers prior to March 1 2016, due to further clarity required in the reporting and management of these funds.
“There is a big gap in South Africa to encourage savings, as many people get to the end of their working careers and just haven’t done enough. So the idea is to give an incentive at some kind of level that makes it accessible,” said Ngundze.
Old Mutual’s Richard Treagus said customers must consider estate planning and nominate beneficiaries to avoid estate process delays and executor fees.
Sanlam Retail Investments head Quaniet Richards said customers needed to declare amounts of savings on behalf of their minor children in their tax return.
“You can save on behalf of your children and by doing this you will be using part of their tax-free allowance, which limits their ability to save for themselves via this type of product later on,” said Richards. — Siya Miti
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