Regulatory changes will ramp up appeal of tax-free savings accounts
The South African government first introduced tax-free savings accounts in March 2015 to stimulate a culture of long-term savings in South Africa and promote economic growth. Following last year’s increase in the tax-free savings limit from R30 000 to R33 000 (per tax year), the winds of change continue to blow strongly through this sector to enhance and entrench the savings culture in South Africa even further.
A significant new development from March 1 will be the ability to seamlessly transfer money between tax-free accounts. Until now, it has not been possible to do this as savers lost their tax-free status when they closed one account to move the money into another tax-free account. This change is therefore a welcome development that should further fuel interest and the growth of tax-free accounts, while crucially assisting in further boosting savings levels in our economy.
After many months of preparation, collaboration and working with industry stakeholders, Standard Bank is ready for this next exciting growth phase. The savings market is more complex than most people are aware, but practical and necessary changes such as this are certainly making tax-free accounts more accessible, while ensuring greater efficiencies and ease of use.
In our view, anyone in South Africa who has money to save should first put it into a tax-free account to truly benefit from the build-up in interest — totally tax free.
However, many people get confused with the array of choices out there. There are a number of different offerings in the market and before now, it was not possible to simply switch and select the best option.
This is where public awareness and education is so important. Remember, there is no limit on the number of tax-free accounts a customer may have, but they are still subject to the contribution limit of R33 000 per tax year and the lifetime limit of R500 000. So you can open five tax-free accounts, but if you put in more than R33k collectively, a rather stringent penalty is levied by SARS, which is 40% on the capital amount that was over-contributed. This penalty is purposefully high to prevent people from abusing the tax-free benefit that is significant over time.
It is another reason why the above change is so important, as until now, those customers with more than one tax-free account and who switched funds from one tax-free account to the other may have faced the prospect of breaching the annual contribution limit of R33 000 per tax year, as the receiver of revenue would view it as a “withdrawal” from one tax-free account and a “contribution” to another tax-free account. Thankfully, this will no longer be a problem if savers use trusted providers to transfer tax-free funds from one account to another, from March 1 onwards.
If you are considering transferring tax-free money from March 1, it is very important you follow the right process by filling in a request for transfer form, which can be obtained from the institution to which you would like to transfer your tax-free funds and handing it in at the institution which will be transferring the funds. The process is really simple: a branch consultant will give you a request for transfer form (in our case this will already be partially completed), you then complete this form and hand it in at the institution from which you are transferring the tax-free funds. They process this request and then make an inter-bank transfer to the institution to which you would like to transfer your tax-free funds, accompanied by a transfer certificate (you also get a copy of this). Then you are done!
Online processing is likely to come online in the near future, but for now, you need to go to a branch to facilitate the process to transfer tax-free funds between tax-free accounts.
With the 2018 budget around the corner, let’s hope we get further increases in the amounts we can save in tax-free accounts. However, what is imperative is to maximise your existing allowance before the current tax year ends, to enjoy the full benefits. For example, for those wanting to save for education — remember you can open an account in the name of a minor and thereby save on behalf of children or grandchildren too — these accounts are really useful. For all citizens hoping to secure their nest egg, opening a tax-free account is the best way to start.
Standard bank’s Tax Free Call account is growing nicely as these developments unfold and as interest grows, and what is really positive is that we are not seeing many people withdrawing money. This means savers are using the accounts for the long term, which then ensures that the compound effect on interest can really be maximised.
Attractive interest rates are a hallmark, as is the ability to invest as little as R250 up front with no management fees, and you then can then add to this, as and when you can. It is our way to really entrench savings and create broader access to formal banking products.
Our savings industry is developing fast and it is important to start as early as possible. We welcome the new changes and look forward to further assisting South Africans to save for their own and their family’s futures.
Takumi Daling is product manager: savings and investments at Standard Bank South Africa