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Tax-free savings switches delayed another year

Personal Finance

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Transferring your money in a tax-free savings account to another tax-free account will not be possible for another year, National Treasury announced this week.

In a media release, it said it will shortly publish the final version of regulations published as a draft last year, and these would be effective as of this week.

The regulations will spell out the minimum requirements for transferring a tax-free savings account from one provider to another. But the media release says that, to give the financial services industry time to comply with the regulatory requirements and test their systems, Treasury has decided to postpone the implementation of this aspect of the regulations until March 1 next year.

Other parts of the regulations clarify the ban on charging performance fees on investments within tax-free accounts, make financial services providers responsible for helping you to ensure you do not exceed the monthly or annual limits for contributions to these accounts, and compel banks to disclose the rate of compound interest you earn on deposits within tax-free savings accounts.

Some banks have advertised misleadingly high simple interest rates on their tax-free accounts.

If you want to transfer your tax-free account from one provider to another, you will not be able to withdraw from one account and invest in another without this being regarded as a new contribution that counts towards your annual limit.

The annual limit was increased in this year’s budget from R30 000 to R33 000, while the lifetime limit on contributions to these accounts remains R500 000.

In order to effect a transfer without affecting your annual and lifetime limits, you will have to ask the financial institution with which you have invested to carry out the transfer.

The draft regulations stipulate that, to do this, the financial institution from which you are transferring your tax-free investment will have to provide a transfer certificate and send certain information to the new financial institution with which you have chosen to invest.

Denver Keswell, a senior legal adviser at Nedgroup Investments, says the life assurance and unit trust industries are eagerly awaiting the implementation of tax-free savings account transfers, because they already have systems in place to effect the transfer of retirement fund savings from one institution to another.

Keswell says many people who have invested money in a bank tax-free savings account are probably too conservatively invested and may benefit from moving to an investment in a unit trust fund that is exposed to assets with greater potential for above-inflation growth.

But the banks have never had to transfer accounts from one institution to another and they hold most of the tax-free savings accounts, he says. Treasury has therefore agreed to give the banks more time to set up processes to enable them to effect transfers between institutions, Keswell says.

The final regulations will stipulate the number of days within which financial institutions must effect a transfer at your request from one tax-free savings account to another – the draft regulations stipulate 10 business days.

The draft regulations also limit to two the number of transfers you (or your deceased estate) can make from a financial services provider in a year.

Another provision in the draft regulations relaxes the rules stipulating that investments in tax-free savings accounts must be available within 32 days if the investment, such as fixed deposit, has a term to maturity, or to seven days if it is any other investment.

Treasury says the aim of relaxing this regulation is to encourage the banks to offer more deposit accounts within tax-free savings accounts and with a higher interest rate.

It is expected that the final regulations will be published this month.

See "Saving to a tax-free account is a no-brainer"

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