In an article published in a financial magazine shortly after the delivery of the annual budget speech, a respected local economist made this comment:
"…essentially this was not a good budget for the saver…"
But is this really the case?
Not necessarily, says John Kinsley, MD of Unit Trusts at Prudential Portfolio Managers. In fact, long-term savings via a government-approved retirement vehicle have become even more attractive than before.
Investors should be informed of the long-term impact of tax changes on different investment vehicles to ensure they have adequate savings.
The most important tax changes for future retirees relate to capital gains and dividends.
The two tax changes that are particularly relevant are:
- An increase in Capital Gains Tax for the individual from 10 percent to 13.3 percent.
- The introduction of a Dividend Withholding Tax of 15 percent on all dividends paid to South African individuals.
Investing in a government-approved retirement fund versus a balanced unit trust has different pros and cons.
To really see how these changes affect your retirement planning we will use a case study of a 35-year old individual who wishes to retire at the age of 60 and can afford to set aside R2500 each month towards retirement. Also, whereas most analysis focus only on the build-up phase (before retirement), we will also take into account the actual retirement phase.
The table on page two summarises the differences between investing in a retirement annuity versus investing in a balanced unit trust as an individual:
Article continues on page two, three and four...