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Compulsory Savings

Retirement reform is about to shift gears from being of only academic interest to SME owners, to becoming a business issue.

Craig Aitchison

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Retirement-Savings

Employment benefits are usually the last thing on the minds of SMEs and entrepreneurs. Running their factory and covering monthly overheads is what they’re really preoccupied with.

However, most come to recognise the benefit once they see that the ability to offer employees a suite of benefits puts minds at ease and typically improves operational performance. At the very least, it helps with attracting and retaining a better quality of employee.

It’s good that this is so, because retirement savings and a national savings scheme are likely to become compulsory for all employees in time, and employers should start planning now. Currently, only 50% of employed South Africans belong to a retirement fund, and government is considering regulations to increase this dramatically.

As to why: the country’s savings rate at 16% falls well behind even similar developing countries such as Russia (28%), India (34%) and China (53%).

Social security reforms

As part of its proposed social security reforms, government wants to bring about a compulsory savings scheme. The current proposal is that all employed individuals should pay to a compulsory fund a contribution of their annual income, up to a cap of R150 000 a year.

The contribution will be directed toward funding retirement savings, as well as a death benefit and a disability benefit. Current thinking is that the level of contribution would be 10% of earnings.

This contribution would go into the National Social Security Fund (NSSF). A pension received from the NSSF would amount to at least 40% of the annual income of the individual before retirement. Individuals could top this up with further tax-deductible contributions into either their own retirement fund or a defined contribution section of the NSSF.

For those individuals not currently belonging to any retirement fund, it’s likely to be onerous to find the additional money to save. Government is considering addressing this with a form of contribution subsidy to lower income individuals to assist and encourage them to contribute to the NSSF, but employers may want to soften the blow for other employees (and their own company contribution) by phasing in a scheme over the next few years.

Retirement reform

National Treasury lists three broad objectives of retirement reform: firstly, to improve our rate of savings; secondly, to ensure retiring individuals have a reliable income; and thirdly, it has to be fair and low cost.

The first issue involves increasing the number of people contributing to retirement savings, and secondly introducing compulsory preservation so that those who have saved towards retirement cannot access their savings to spend it.

At the moment, members have three options when they leave an employer: they can take their retirement savings in cash, transfer it to a new employer, or transfer it into a preservation fund or retirement annuity. Invariably people take the first option.

The impact of this is that at retirement, members who ought to get a benefit equal to 70% to 90% of their final salary, in fact get only 30%.

To address this, National Treasury has proposed that some level of preservation of retirement become a default option when employees change jobs.

Access to retirement savings

As the new arrangement cannot be retrospective, compulsory preservation would not affect current retirement savings, which would still be available when an employee changes jobs. Further, Treasury is proposing that the unemployed be given some access to their preserved retirement savings and that access will also be allowed in cases of demonstrated medical need.

Post-retirement is also being addressed. Most people use their pension savings to purchase an annuity on which to live in retirement. Treasury’s proposal is to reform the annuity market, having identified the level of costs of some retirement savings products as an issue. By far the largest component of costs is the charge for financial advice, with the other two components being asset management fees and administration.

Treasury is also seeking to simplify taxation of retirement savings. Employer contributions will be included in employee’s remuneration as fringe benefit. Individuals will be permitted a deduction of up to 22,5% of income if under 45, and 27,5% if over 45 on all contributions made to pension, provident and retirement annuity funds.

Three papers have been released by National Treasury so far, one in May covering ‘Strengthening retirement savings’, and two in September covering preservation, portability and annuities. As of the time of writing, a further two were expected to be released in October.

Craig Aitchison has been appointed as Managing Director of Old Mutual Actuaries and Consultants (OMAC). Aitchison was previously responsible for the operational management and client service side of the OMAC business.

Personal Finance

10 Tips To Become A Millionaire This Year

Becoming a millionaire requires changing your mindset and implementing some changes.

Murray Newlands

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Becoming a millionaire may seem out of your reach, but it’s possible with the right attitude and guidance. The fact of the matter is your income can only grow as quickly as you do, so you need to change your mindset to achieve your goal of becoming a millionaire.

Once you have a millionaire mind, you can’t lose it, no matter what financial or business mistakes you make along the way. To get yourself there, you’re going to need some structure. To help you, I’ve outlined the top ten tips you should follow to become a millionaire this year.

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Personal Finance

If You Think These 5 Things, You’ll Never Get Rich By The Time You’re 30

Five common mistakes entrepreneurs make when starting a business and how to correct them.

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Last week, I had lunch with a millennial who wanted some advice about a business he’s starting. After the usual small talk, we got down to discussing his business plan. Within a short time, it was clear that his business idea was great, his plan for executing was fairly solid and he had gathered together a strong team to help him make it happen.

So far, so good. But, to be frank, this guy has no chance of being successful with his current mentality. What it takes to be rich (or successful in any measure) has a lot more to do with your mindset than your ideas and plans.

From the time we started in business at the ripe ages of six and seven, our Grandpa Joe taught my brother Matthew and me many lessons about the details of running a profitable business. Over the years, we learned about how to create a business plan; how to market our products and services; and how to take care of customers, vendors and employees. All this knowledge has been invaluable to us in creating and running successful businesses. But, what our grandfather taught us about attitude and mindset trumps all other lessons.

Without calling out the specific individual I spoke with recently, below are five “hypothetical” attitudes that will get you nowhere in your journey to success – and the attitudes that should replace them.

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Personal Finance

5 Habits That Lead To Millionaire Business Success

You need the right habits if you’re going to succeed.

Timothy Sykes

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What do all millionaire businesspeople have in common? Well, a lot of things.

I found from a recent study that 80 percent of all millionaires still go to work every single day. They’re working people just like me. But, they have to keep themselves in work or it all grinds to a halt. So what are the habits you need to make your business a success?

1. Patience

Nothing is ever going to come easy. You can look at the likes of Steve Jobs and Bill Gates, as well as the other usual suspects, to realize that success didn’t come with their first venture. Many of them failed time and time again. It took patience for them to become successful.

I read an article recently about 36-year-old teacher Andrew Hallam who became a self-made millionaire on a teaching salary. But, in his spare time he invested smart and lived frugally.

It proves you don’t have to inherit lots of money or become an instant success to make a millionaire business.

Related: 4 Ways To Become A Millionaire Even When You Start With Little

2. Dedication

You have to be dedicated to your craft if you’re going to become successful. Going back to Bill Gates again, he started his business in the back of his garage. Now that’s dedication.

It’s what I tell all my students. If they’re not dedicated to this, then they should leave. You need to be able to push through the barren periods if you’re going to reach the oasis of success.

3. Ambition and big dreams

Have you ever heard the quote, “Shoot for the moon. Even if you miss you’ll land among the stars”?

I take that to heart because even if you aim to become a billionaire and miss you still might be a millionaire many times over. Take the Wright Brothers as an example. Not content with creating a successful glider in 1902 they went on to create the world’s first airplane in 1903, making four brief flights in Kitty Hawk. It demonstrates the importance of dreaming big because you never know what you might achieve.

Related: 12 Millionaire Habits To Start Making Serious Money Soon And Build Wealth In A Hurry

4. Learn from mistakes

Every good businessperson will mess something up. It’s inevitable. What’s important is how you learn from your mistakes over time. Do you adapt after making your mistakes?

Millionaire businesspeople always set some time aside to reflect. Then they create a plan of action for ensuring that it doesn’t happen again. Most failed businesspeople put it down to “bad luck.”

5. Focus on niches

This important! Try to take over a whole industry at once and you’ll inevitably get swallowed up by the competition. Start small and control your own niche before moving into another niche. When you master your small area, you can push on and expand.

Related: 21 Choices Millionaires Make That You Aren’t Making But Should Be

You’ll be amazed at how much easier it is to expand after you master your own niche/audience first.

Do you have what it takes? That’s the question I always ask novice businesspeople. You need a plan and you need the right habits if you’re going to succeed.

This article was originally posted here on Entrepreneur.com.

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