Tax-free savings: A word from National Treasury
It’s a case of slow and steady for the tax-free savings market with no material changes to the regulations likely to be introduced.
We spoke to Christopher Axelson, director of personal income taxes and saving at National Treasury, to get a glimpse of what the crystal ball has in store for tax-free enthusiasts in 2017.
Not much, evidently. With tax-free savings accounts (TFSAs) still in their infancy, Treasury is of the view that it is still early days and too soon for any drastic changes. With over 260,000 accounts opened in the first year and 39,458 of those belonging to firsttime investors, Treasury is satisfied that its initiative to
promote a greater savings culture is on the right path.
“It’s a very good start,” says Axelson. “You see, when incentives are introduced to the market it’s always hard to get exposure and penetrate with the general public, so we’re satisfied with the
While Treasury is satisfied, Axelson says more data is still needed
to properly gauge the product’s performance. He says Treasury will continue collecting and monitoring data from the South African Revenue Service to be in a better position to implement
appropriate changes in future.
Despite Treasury’s optimism, it is no secret that the product has
been received with mixed feelings by service providers. Many argue, among other things, for the annual and lifetime limits
to be raised from R30,000 and R500,000 respectively.
And with SA’s economic woes, including high household debt levels, rising interest rates and unemployment, some worth of contributions to use over their lifetimes, he feels they are reluctant to invest anything if they fear they may need to access the funds in the next year or two, as each contribution reduces the lifetime and annual threshold.
Moreover, any withdrawal taken cannot be replaced without further reducing your contribution thresholds. “If you look at the
ISA, the UK’s equivalent of the TFSA, they do not have a lifetime threshold. People are therefore able to contribute towards
the ISA without any fear of accessing their funds a few years later. The lifetime threshold should therefore either be
increased or scrapped altogether.”
Keswell says while Nedbank is aware of Treasury’s intention to allow transfers between product providers, this has been
delayed a few times, and again it seems the 1 March 2017 deadline may be extended. “It is important to allow investors who are trapped in unsuitable products the opportunity to shop around for products that meet their needs from a cost, risk and benefit perspective,” he says.