In a bid to encourage South Africans to save more, the Minister of Finance Pravin Gordhan, has announced plans to introduce tax-preferred savings and investment accounts in 2015.

Presenting the 2013 National Budget in the National Assembly on Wednesday, Gordhan said this and other initiatives formed part of proposals to encourage households to save more. The legislation would be introduced later this year.

This follows the publication of a discussion document in September last year and after consideration of the comments received; the government intends to proceed with the implementation of tax-preferred savings and investment accounts.

Under the proposal, all returns accrued in these accounts, as well as any withdrawals, would be exempt from tax.

The account would have an initial annual contribution limit of R30 000 and a lifetime limit of R500 000, to be increased regularly in line with inflation.

The new accounts will be introduced by April 2015.

In the meantime, with effect from March 1, tax-free interest-income annual thresholds will be increased from R33 000 to R34 500 for individuals 65 years and over, and from R22 800 to R23 800 for individuals below 65 years old.

Other initiatives the minister announced include making it compulsory for retirement funds to identify appropriate preservation funds for exiting members, who will be encouraged to preserve when changing jobs.

Retirement funds will also be required to guide their members through the process of converting savings into a regular income after retirement and to choose or set up default annuity products that meet appropriate principles and standards.

He said in a bid to promote competition, providers who are not life officers will be allowed to sell living annuities.

The tax treatments of pension, provident and retirement annuity funds will also be simplified and harmonised.

Governance reforms of retirement funds will also be implemented and measures will be put in place to ensure that trustees of retirement funds are trained once they have been appointed.

Gordhan said he would call a conference of all trustees later this year to ensure that the process goes forward.

He said the National Treasury is also looking at how to encourage employers to provide appropriate retirement mechanisms for their employees.

Tax deductions of pension and retirement annuity funds, as well as contributions to provident funds and employer contributions that will constitute fringe benefits, will be increased to 27.5% of remuneration or taxable income – which ever the greater may be.

This would simplify the current way deductions for retirement annuities, fringe benefits and pension funds are calculated.

An annual cap on deductible contributions of R350 000 will be applied.