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Tweaks to tax-free savings accounts proposed
JOHANNESBURG – National Treasury has proposed a number of tweaks to regulations governing the use of tax-free savings accounts (TFSAs), but remains unwavering in its stance that performance fees will not be allowed.

It previously indicated that the nature of these fees was uncertain. It also argued that performance fees could fluctuate quite a lot and could become rather costly, particularly for uninformed investors.

It seems performance fees do not adhere to the principles of simplicity, transparency and suitability set as requirements for inclusion in TFSAs.

National Treasury on Friday proposed amended wording to the regulations to make it absolutely clear that no performance fees are allowed in these products.

It said the policy intent around the treatment of performance fees has been communicated consistently since day one.

“Performance fees may not be charged in TFSAs nor in any of the underlying funds in which the TFSAs are invested.”

Tax-free savings accounts were first introduced on March 1, 2015 in an effort to reduce the financial vulnerability of South Africans.

Individuals are allowed to invest up to R30 000 per annum in one or more of these accounts (collectively) up to a maximum of R500 000 over their lifetime. All the investment returns earned in the accounts are 100% tax-free. While the money can be withdrawn at any point, the benefit of these accounts is only really unlocked in the very long term.

Investors will be allowed to transfer existing savings in a TFSA from one product provider to another from March 1, 2017 following the publication of a postponement notice in the Government Gazette late in September. While this was initially planned for March 1, 2016, it was postponed to November 1 during the Budget in February and has now been deferred by another four months.

National Treasury said the postponement of the transfer date would allow product providers some time to adjust their systems after the final regulations were published. Some of the proposed changes aim to address compliance issues and the administration of fees.

As a principle, the money in tax-free savings accounts should be available to investors for any short-term needs, including emergencies, large expenditures and asset purchases and the ability to access the money “should not be unduly restricted”, it said.

It conceded however that the current rules that offer access to amounts within 32 days for products with a fixed term and seven days for those without a fixed term appear to have restricted the ability of providers to offer fixed term deposits. Only a few fixed term deposit products offering higher interest rates are available.

“In balancing the above two interests, National Treasury proposes a relaxation of the rules on accessibility, which would allow product providers discretion to only allow individuals access upon the maturity date of the product.

“Product providers can, however, still allow investors to access these funds before maturity, as is the case with regular fixed term deposits. The current rules that limit the exit penalty on early withdrawals will remain to safeguard investors against excessive penalties when withdrawing or transferring before maturity.”

National Treasury also proposed that product providers would be required to notify the Financial Services Board one month in advance when a new product would be launched.

“The FSB will be able to review the features of the product for compliance with the Regulations and endeavour to respond to the product provider within the calendar month.”

Product providers won’t be forced to wait for the regulator’s response for more than a month, but the FSB may make certain queries related to compliance following the launch of the product.

Source: http://www.moneyweb.co.za/mymoney/moneyw...-proposed/
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