The National Treasury last week released draft pension fund reform legislation, aimed at walking the fine line between allowing cash-strapped South Africans’ early access to some of their savings while leaving most of it stashed away for retirement. The Draft Revenue Laws Amendment Bill is now open for public comment, after which the proposed amendments will go through a parliamentary process before being signed into law. If all goes according to plan, it will come into effect in March, but trade union movement Cosatu and other experts have expressed some concerns over the proposal.
The draft law is well intended and may offer much-needed relief to those in need but only in the longer term, not straight away. This is one of its points of contention, not to mention the warning from Cosatu that it could trigger a resignation rush by public servants. This, in turn, could spark a liquidity crisis for the Government Employees Pension Fund, Business Times reported on Sunday. However, the Treasury said the measure was intended to protect retirement assets as it fears a run on funds if immediate access is allowed.
The Treasury is proposing a system where retirement funds are divided into two pots: a savings pot allowing immediate access and an investment pot, only accessible on retirement or upon resignation. It is a drastic change that builds in a welcome flexibility in how South Africans may access our retirement savings. But some fear many will resign just before the new law kicks in so they can withdraw all their retirement savings.
It would have been easy to mitigate this by saying the new savings pot offers an alternative answer. But the draft law, if passed, does not offer any quick solutions. People will only start contributing to the savings pot from March, starting on nil. A member will only be allowed to access the savings pot — containing one third of the pension money — once every 12 months. There is no immediate access to savings. And many South Africans, bleeding under high inflation and unemployment, need cash now.
Cosatu’s parliamentary co-ordinator Matthew Parks said the movement would meet Treasury officials soon to discuss their concerns over the draft legislation. This should take place as a matter of priority. The suggested changes were meant to help South Africans. But if it won’t make any material difference in the short term, or if it places the GEPF’s liquidity at risk, part of the proposal needs to be reconsidered.
Once some time had passed though, South Africans will start benefiting from a law allowing them access to the savings pot. Then hopefully workers will no longer be tempted to quit their jobs just to get their hands on their retirement cash because that has the potential to create even worse financial problems. South Africans are notoriously bad at saving for their old age. Last year’s 10X Investment Retirement Reality showed that only half of respondents had enough savings to retire comfortably,
There is no doubt that SA needs an overhaul in its pension laws. At the same time, it should not create a generation that is financially ill-prepared for retirement, a situation that could spark a new crisis.
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