Retirement fund tax just not on

Published Jun 9, 1999

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The tax on retirement funds' interest and rental income is "unacceptable and unfair", Dennis George, assistant general secretary of Fedusa, says.

Addressing delegates at the Institute of Retirement Funds conference, he said:

"If workers are planning and preparing for their own retirement provision, why does government see fit to tax those workers who try to help themselves?

"Fedusa is busy lobbying the Minister of Finance to reduce this unpopular tax."

George told the conference the appropriate forum to take up the issue was the National Economic Development and Labour Council.

Tax, he said, should be negotiated policy and not just a decision by the government.

André Roux, of the Department of Finance, said the tax would contribute an estimated R5,1 billion to the government's coffers this year, or 2,63 percent of total revenue, compared to R4,7 billion (2,6 percent) last year.

He said the government did recognise that the tax had drawbacks: it could discourage poorer households from belonging to retirement funds. But, he said, the retirement tax helped to broaden the tax base, reduced distortions between different investment vehicles, reduced tax arbitrage and tax sheltering, and made other reforms possible ­ such as cuts in income tax and company tax rates.

George called on the Institute of Retirement Funds to take a more active role in trustee training.

"Trustee training is a very important aspect of the overall development of the retirement industry.

"The institute has to play a central role in the curriculum content and to ensure that trustees are fully equipped to meet the challenges, to render superior service to the members.

"It is crucial that the board of trustees communicate honestly and transparently with the members of the fund.

"Issues that should be raised in such communications should include current assets, international investments, investment reserves and fund surplus, interest rates and investment portfolio structures.

"Membership of retirement funds should understand their own funds," George emphasised.

He also urged the institute to consider punitive measures against retirement funds which did not meet with the requirement under the Pension Funds Act, namely, that half the board of trustees must be elected by members.

"It is with great concern that we note that 40 percent of retirement funds have not complied with the provisions of the Pension Funds Act.

"It is no use if an industry asks for self-regulation if it is not serious about complying with the reasonable requirements," George said.

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