Abstract
Most individuals retire without enough savings, and ultimately cannot provide for themselves, and must rely on relatives or the State for their needs. One of the main reasons for this problem is that members do not contribute sufficiently towards savings while they are economically active. To promote increased retirement savings, the Government forfeits revenue by providing tax incentives for contributions into retirement funds, i.e., pension, provident and retirement annuity funds. Before 1 March 2016, there were different rules regarding the tax deductibility of contributions into each of these retirement funds. This tax regime was considered (i) too complex, (ii) open to abuse by high-income earners and (iii) unfair and inequitable between different individuals. On 1 March 2016, uniform legislation was introduced. The South African National Treasury expected that this harmonised regime would positively influence retirement contributions. The purpose of this study was to explore the contribution of the new legislation implemented by the National Treasury towards retirement fund contributions and tax incentives. A qualitative research method was selected for this research as there was a need to understand individuals' lived experiences and reasons behind behaviour following the implementation of the new regime. Qualified tax practitioners were taken through a semi-structured interview to understand how individuals experienced and responded to the changes in legislation. The study’s findings revealed that the pre-2016 pension fund tax deductibility rules were complex, resulting in difficulty in understanding, worsened by the information deficiency. The new harmonised regime provided clarity on tax deductions and made it easier for members to understand the tax deductibility legislation. High-income earners who seemed to have more access to advice, felt targeted by the new legislation but their contribution levels were not affected by the new regime as they took advantage of the annual tax roll-overs for contributions. Overall, the harmonisation was considered to be fairer, specifically towards the lower-income earners in that it provided these tax incentives in a simpler, more equitable manner, but there is no consensus on whether the changes increased retirement contributions and savings. The study recommended compulsory education or communication when legislation regarding retirement funds is specifically to lower-income earners who may not have easy access to advice. In addition, setting a minimum contribution ensures that low-income earners, who may
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be hesitant, are pushed to save. The study provides valuable insights on how individual members perceive retirement funds and tax incentives as a whole and how the retirement savings system may have been improved upon and may serve as a contribution to future research due to its differentiated, qualitative approach.
Keywords: retirement savings, retirement funds, tax deductible contribution, tax incentive, tax practitioner, legislation harmonisation.