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South Africa pension reform opens up new advice opportunities Proposed pension reforms in South Africa could open significant advice opportunities for financial intermediaries and providers.
Aimed at encouraging taxpayers to save more towards their retirement, the South African National Treasury announced plans in February to introduce a flat 27.5% contribution limit on the amount a taxpayer can place within a tax-relieved pension fund (as a percentage of salary), an increase on the existing limits.
This new limit will be introduced across the three main types of retirement vehicle – pension funds, provident funds and retirement annuities.
In addition, the National Treasury plans to introduce a R350,000 (£22,000) cap on annual contributions – the first time such a cap has been proposed and, for comparison, significantly less than the £50,000 cap currently permitted in the UK.
A consultation on the proposals closed at the end of May but, if the changes are accepted, the National Treasury said it plans to implement them “on or after” 2015.
David Gluckman, head of employee benefits, future positioning and research at South Africa-headquartered Sanlam, said the proposed new limits on pension contributions are “substantially above the current level, which must mean there will be some opportunities for companies such as Sanlam”.
Meanwhile, Craig Aitchison, general manager of corporate customer solutions, Old Mutual Life Assurance Company, added “the onus will be on the insurance companies to come up with strategies to encourage people to put more into their retirement savings to reduce their retirement savings shortfall”.
However, it is at the HNW end of the client spectrum where the imposition of the R350,000 cap has the potential to open more advice and product development opportunities.