By 2016, the means test for the state old-age grant could be a thing of the past, so that everyone over 60 will be eligible for the grant, Finance Minister Pravin Gordhan announced in his Budget this week.
The proposed phasing out of the means test is likely to benefit lower-income earners but leave wealthier taxpayers in a neutral position, as the tax rebates will be adjusted to offset the benefit of the pension to them.
The tax rebates reduce the tax you pay to ensure that a portion of your income is tax-free.
In the Budget this week, it was announced that the grant will increase to R1 260 a month (up from R1 200) for individuals aged 60 to 75 from April, and to R1 280 a month (up from R1 220) for those over 75.
Gordhan says the proposed scrapping of the means test is intended to:
* Prevent the exclusion of vulnerable individuals;
* Simplify the administration of old age grants; and
* Eliminate the disincentive to save for retirement among low-income earners.
The test has excluded millions of South Africans who have not been able to save adequately for retirement during their working lives, and it is known that some people have been prompted to cash in and spend whatever savings they had, before or when they retired, in order to qualify for the state old-age grant.
The extension of the old-age grant to everyone over the age of 60 is in line with the government’s retirement reform proposals. The Budget Review says: “Adjustments to personal income tax rebates will partially offset the costs of this reform, and will ensure that the overall incidence of tax and income support arrangements remains distributive.”
National Treasury officials say they have yet to decide on the finer details of how the offset for higher earners will apply. All taxpayers enjoy a primary rebate, while those over the age of 65 also enjoy a secondary rebate, and those over the age of 75 enjoy three rebates.
About 16 million South Africans benefit from social grants – for 22 percent of households, the grants are the main source of income.