With the retirement reform changes (T-Day) set to take effect on 1 March 2021, construction business owners should be aware of the changes to communicate these to their employees and minimise any uncertainties they may be experiencing ahead of the day.
This is according to Danie Hattingh, Principal Officer of the BIBC Pension Fund and Executive Committee Member of the Master Builders’ Association Western Cape (MBAWC), who says that fundamentally provident funds will now be subject to the same rules at retirement as pension funds and retirement annuities. “However, those aged 55 or older on 1 March 2021 who remain a member of the same provident fund will be exempted from these changes.”
This means that from T-Day, those under 55 years of age will have to use a minimum of two-thirds of their retirement benefits towards purchasing a monthly pension when they retire, he says. “However, once you retire, the total of your benefit that was already in your provident fund before and on T-Day will not be affected by these changes.”
Hattingh explains that this piece of legislation is the final step in the National Treasury’s process of harmonising the rules across all types of retirement funding vehicles. “In turn, this will also serve as a way to iron out anomalies and to make the retirement funding industry easier to understand.”
This is important, he says, because comparatively, the culture of saving in South Africa is below that of similar-sized economies. “This is largely attributed to many South Africans being faced with over-indebtedness, as reflected by the South African Reserve Bank which revealed that household debt is close to 73% of gross income, and that was even before the COVID-19 lockdown and resultant economic shutdown.”
“As such, the government aims to remedy this reality through these legislative changes which it hopes will ensure that provident fund members preserve their capital rather than withdrawing 100% of their savings when they retire,” he says. “This often leads to retirees spending their retirement savings too quickly and ultimately leaving insufficient monthly income to support them to the end of their lives.”
“With this in mind it is important for those in the industry to not be alarmed by the changes, but rather understand that their money is safe and protected,” he adds.
To further explain the retirement reform changes, MBAWC is hosting a one hour long, free webinar presented by Ian Nieuwoudt, Principal Benefit Consultant from Simeka, a member of the Sanlam Group, titled, “Unpacking T-Day (Retirement Fund Reforms). This will be hosted via Zoom on 24 February 2021 from 11:00 am. The session will answer questions such as, “What is T-Day? How will I be affected? What do I need to do?
“Without a doubt the new rules and changes set to be introduced come 1 March 2021 are complex. However, what we know is that non-compliance is not an option as it may result in tax consequences. Along with this, we want everyone to rest assured that these changes will protect their money. As such, we invite those in the industry to register for this free webinar and encourage them to contact their financial advisor or retirement fund administrator for further information,” Hattingh concludes.