If you are a member of a defined contribution retirement fund you should be concerned about the 17 percent tax the government imposed on the interest and rental income of your fund earlier this year your end benefits could be reduced by up to 20 percent by the new tax.
An Old Mutual Actuaries & Consultants survey of defined-benefit funds released this week shows the tax reduces investment returns by 0,75 percent a year. Compounded over a full working lifetime of 30 to 40 years this means a reduction of almost 20 percent in retirement benefits.
The situation could get worse if the government increases the level of the tax. The Katz Commission recommended the taxation go as high as 30 percent.
And one of the problems, revealed by the survey, is that you, as a member, probably do not know this because communication between members and their funds is not what it could be.
Added to this, the survey has found that very few funds have managed to put down clear investment plans to give members a real return of about three percent (after inflation), down on paper.
The survey covered 58 funds with assets of R26 billion and about 250 000 members, representing about 15 percent of the defined contribution industry.
Anthony Lester, managing director of Old Mutual Actuaries & Consultants, says the survey gives the defined contribution industry a "qualified thumbs-up" at the moment, but there is room for improvement.