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When finance minister Trevor Manuel opened the National Economic Development and Labour Council (Nedlac) conference for retirement fund trustees at the end of October 2004, he alluded to the much-awaited holistic review of the retirement funding system in South Africa. It is commonly accepted that the Income Tax Act providing incentives for people to squirrel away for their retirement is the foundation on which the South African retirement fund system is based. From a tax perspective, little has happened since the Katz committee’s second report was released almost 10 years ago. One of only real tax reforms introduced in 1998 was the equalisation of the treatment of public and private sector funds. Until this time, lump sums emanating from public sector (government) funds were not subject to tax whereas private sector funds were. From 1998 onwards, lump sums accruing from this point onwards in public sector funds were also taxable. In addition to the current retirement fund tax review, which may see the abolition of the controversial Retirement Funds Tax, the other significant outcome of the Katz committee’s recommendations, the Pension Funds Act, is being reviewed. The current act, promulgated in 1956 and amended over the decades, is considered outdated and «leaving the retirement fund industry untransformed would be tantamount to neglect, as it is the heart of the economy and the financial sector», according to SA Communist Party president Blade Nzimande at the same Nedlac conference. Manuel’s statement was that «future generations will judge us by what we do today». So, clearly, the holistic review of the Income Tax Act as it relates to the retirement fund industry and the Pension Funds Act is currently an issue in political circles. Shortly after the Nedlac conference, there were various parliamentary hearings on the state of the retirement fund industry. What is important now for retirement savers and the retirement fund industry is that the holistic review is completed, is holistic, and is implemented. This will allow the various stakeholders to act with certainty. Over the past few years there have been a number of reports, committees and conferences, however, not too much has converted into implemented changes, for example, the Smith Report (1995), the Katz committee’s second report (1995), the National Retirement Consulting Forum (1997), the Taylor report (2000), and now the Nedlac Trustees Conference (2004). However, in an apparent snub directed at Manuel, Nzimande made it clear that labour had not been involved in the drafting of the new Pension Funds Act. This follows on from the financial services charter almost collapsing a few months ago because labour had not been involved in the process. For this reason, the charter had not been adopted by all almost a year after it had been released. In listening to speeches made by Nzimande and Willie Madisha (president of Cosatu), it becomes clear that the holistic review involves more than just the wording of the Pension Funds Act and the tax incentives that go with it. Holistic is taken to mean addressing various social problems the country currently faces. Madisha pointed out that 40 percent of workers could not find a job and most of these were under the age of 30. This is creating a great burden on the older generation and pensioners, together with the effects of HIV and higher death rates creating a further burden with orphaned children. It was mooted that support for developmental investments, even measured in non-financial terms, lessens the burden on the general society. It is felt that if infrastructural investments (socially responsible investments) help alleviate these burdens and help redistribute funds, even if there is a higher short-term cost, then this approach must be included in the holistic review. By Andrew Crawford Andrew Crawford is the chief executive at Glenrand MIB Benefit Services
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