Over to financial industry to bring tax-free savings to life

01 March 2015 - 02:00 By BRENDAN PEACOCK
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The National Treasury has issued its final regulations paving the way for a range of tax-free savings accounts from today - but the eleventh-hour notice has not given financial services companies much time to prepare products that fit the format.

For years, the government has been mulling over how to get South Africans to save more. The new savings accounts, unlike retirement funds, will allow South Africans to periodically dip into their savings.

Galileo Capital director Warren Ingram said people should use these tax-free accounts as part of their retirement savings.

"The money you put into these designated accounts will not attract income tax, dividends tax or capital gains tax. Using a unit trust as an example, you're allowed to put a maximum of R30 000 per year per person into such an investment," he said.

"There's no tax deduction on these contributions, as you'd get with a retirement annuity, but once the money is in there you'll never pay any form of tax on that money."

There is a lifetime maximum of R500 000 that can be put in these accounts, however.

"There are no restrictions in terms of when you can make withdrawals, but whatever you take out cannot be replaced as part of your annual allowance. It's a use-it-or-lose-it basis - you'll lose your ability to put that money back in again," said Ingram.

Unit trusts, RSA retail savings bonds, money market accounts and some other interest-bearing products are most likely to be used as part of these tax-free accounts.

Ingram said most financial services companies would start offering tax-free account products - but it may be a hard sell.

"Providers will have to market and advertise these products because we don't have a great culture of saving," Ingram said.

Existing products will not be allowed to convert into tax-free savings vehicles, and the Treasury has nixed performance fees, as part of its intention to lower charges in the financial industry.

All qualifying products must allow people access to the funds they invest within 32 business days, while some products must make the money available within seven days.

The Treasury has insisted, however, that these are not to be transactional accounts, so debit orders and ATM transactions will not be allowed.

Only registered banks, long-term insurers, managers responsible for collective investment schemes and the government, mutual banks and co-operative banks will qualify to launch these accounts.

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