The National Treasury has put on ice its plan to overhaul investment-linked living annuities (illas) and to allow more companies to provide these products, Parliament’s standing committee on finance heard this week.
In the draft Taxation Laws Amendment Bill released in June this year, the treasury announced its intention to open up the illa market to companies other than life assurers and to rename these products retirement income drawdown accounts (riddas).
However, Keith Engel, the treasury’s chief director of legal tax design, told the parliamentary committee this week that it found there were regulatory issues in addition to tax issues that needed to be addressed in order to implement the proposal.
He says the proposals in the tax bill will be withdrawn and a separate set of bills issued later this year for Parliament to consider early next year.
Currently, illas can be sold only under a life assurance licence. They are widely marketed by linked-investment services provider companies, which are often owned by life assurers or which obtain licences from life assurers.
Retirees use illas to provide a monthly pension or annuity, but unlike traditional guaranteed annuities, you take the risk that your savings will be sufficient to pay you an income in retirement, and the investment decisions are typically yours to make.
The treasury wants to open up the illa market to more institutions to reduce the costs of these products.
It also hopes to encourage pensioners to consolidate their annuities and to scrap the current minimum drawdown rate and link the value of the annuity to the annual value of the retirement savings you have invested in your illa.