Personal Finance Editor, Bruce Cameron and columnist, Magnus Heystek, who is deputy chairman of the Citadel financial services group were the main spoke at a Syfrets Private Bank/Saturday Argus Investors Club meeting. Heystek and Cameron, who are the joint authors of Retirement - The Amazing and Scary Truth, spoke about the enormous complexity of retirement for everyone. This is an extract from Cameron's speech.
The Katz Commission recommendations, if fully implemented, could cost you as much as 35 percent of your retirement benefit by the time you retire in comparison to three years ago.
This shocking figure was revealed by Bruce Cameron, Editor of Personal Finance, at the Syfrets Private Bank/Saturday Argus Investors Club this week.
Cameron says it is imperative that government makes its intentions clear now so that proper planning for retirement can take place.
"Gill Marcus, the deputy Minister of Finance, has said publicly that government will be going ahead with a new system of taxing retirement funds.
"Government has already implemented the Katz-recommended tax on the interest and rental income build up for your funds, firstly at 17 percent and this year at 25 percent.
"I predict that soon it will be at the 30 percent recommended by Michael Katz.
"Estimates by the retirement industry are that your full retirement benefit could be reduced by up to 20 percent."
Cameron says if government goes ahead with Katz's other proposals on how retirement funds should be taxed at retirement then middle to high income earners will be particularly hard hit. For example, someone retiring with more than R1,5 million as a total benefit could pay close to 20 percent more in tax.
"When you add the tax on the build up of funds to the new taxation structure recommended by Katz at retirement you could very well land up receiving 40 percent less in end benefits than someone who retired three years ago."
Cameron says it is likely a new taxation system will make it more difficult to retire with sufficient money.
"If you do not start planning for retirement from the day you start working the chances of having to rely on a state old age pension increase dramatically.
"Can anyone here imagine budgeting to live on R490 a month and not living on dog food or even less?
"Most of South Africa's elderly have no choice but to live on R490 a month. What is even more frightening is that because of the high unemployment in South Africa most recipients of the Social Old Age Pensions use the money to support an extended family."
Cameron says even the better off cannot assume that paying into a retirement fund is sufficient.
Retirement planning has to start long before actual retirement, requires major decisions at retirement and constant attention after retirement.
The reasons include:
* The move from guaranteed defined benefit pension funds to defined contribution funds where you take the investment risk;
* Greater choice of investment options; and
* Changes in tax legislation.
"Medium to high bracket earners will constantly have to adjust retirement plans; employers will have to offer other retirement savings plans outside existing schemes, based on after tax income; and financial institutions will have to rethink the products they provide."
Cameron says issues you will have to reassess regularly include:
* Deferred taxation, that is what you will save by taking advantage of paying less tax now rather than later through rebates on tax savings;
* Tax on interest and rental income in the build up of retirement funds;
* Tax at retirement; and
* Current and potential income.