News24.com | The battle for pension savings: Between secure retirement and survival

  • Cosatu is pushing hard for the amendment of the Pension Funds Act to allow members to access their savings.
  • Finance Minister Tito Mboweni made no mention of this in his Budget speech, but discussions are continuing.
  • The amendments are a source of great anxiety to pension fund administrators who could face unimaginable outflows.

The retirement savings industry keenly follows Finance Minister Tito Mboweni’s speech every year, if not for anything else, to advise savers how to maximise their tax benefits when tax rates and bracket adjustments are announced.

The 2021 Budget speech, however, had a lot of game changers for the industry. The automatic enrolment of workers into retirement plans that the sector has long been advocating for, and the annuitisation of provident fund benefits – which has been delayed over and over again in the past – finally came into effect on 1 March.

However, there was one missing crucial announcement in the Budget speech that could have sent the retirement savings on a tailspin: the way forward for the Pension Funds Amendment Bill of 2020, allowing workers to partially access their retirement savings in cash.

In the Budget Review booklet, Treasury did briefly touch on the proposals for allowing individuals to partially access their retirement savings. It said government continues to engage with trade unions, regulators and other stakeholders about this.

Calls to the government to allow workers to access their retirement savings have come from both the governing party’s alliance partner, the Congress of South African Trade Unions (Cosatu), and from the opposition benches.

The DA tabled the private members’ Pension Funds Amendment Bill 2020 in Parliament in November, while Cosatu is still waiting for National Treasury to table its Bill on the matter or propose some amendments to the private members’ Bill introduced by the DA.

The DA proposed that government amend the law to allow workers to use up to 75% of their retirement savings as security for any bank loan, and not just mortgages. Currently, the Pension Funds Act allows retirement fund members to use their savings as surety to obtain a home loan only.

Cosatu, on the other hand, asked government to allow retirement fund members to take up to 30% of their savings in cash. Cosatu’s deputy parliamentary coordinator, Matthew Parks, said Treasury had already agreed to this in principle last year, prompting Mboweni’s commitment in the mini-budget to present legislation to allow for this in 2021 under certain circumstances.

Cosatu is pushing for amendments to be tabled in April

Cosatu was keen to see the Bill expedited given the urgency of the relief that it is trying to provide to households who have had their incomes slashed by no bonuses, salary reductions, and some family members losing their jobs.

“Our concern is that we are running out of time. We wanted this to happen in October this year and for that to happen Treasury needs to table a Bill in Parliament no later than April. The government agrees with us in principle, but they are not moving at a necessary speed,” said Parks.

Cosatu is hoping to meet again with National Treasury next week to try to speed up the process.

Parks said his concern is that if the amendments to the Pension Funds Act take too long, workers who are battling will start resigning to cash out all their savings, a situation that the labour federation, government, and the pension fund administration industry all want to avoid.

Uncapped mass withdrawals would be disruptive not only to retirement administrators and investment firms, but the entire economy given pension funds’ investment in JSE-listed companies, infrastructure projects, and other capital markets.

While there are material differences between the Cosatu’s proposal and the private members’ Bill, Park said the two can easily be merged.

That would mean amending the private members’ Bill that is already with the Portfolio Committee on Finance, revising the percentage of their savings that members can access as loan guarantees or cash. Cosatu feels that 75% is too high given South Africa’s already dire retirement savings levels. Retirement fund administrators report that only 6% to 8% of workers save enough to retire comfortably.

A panacea or sure way to create more old-age grant dependents?

While Cosatu and the DA have high hopes for the Bill, the pension funds administration industry is jittery about the disruption it could cause.

Already trying to wrap its head around a new administrative burden of managing separate provident funds for members because of the annuitisation rules that kicked in on 1 March, administrators argue that their systems are not geared to handle another layer of complications that using pensions as loan guarantees could bring.

Nor could they cope with the volumes of withdrawals that could come if people are allowed to partially cash out their savings.  

But many don’t want to put their heads on the block on this debate. After all, these amendments can mean the difference between keeping the roof over people’s heads and hanging workers out to dry at the most desperate of times.

“It’s a very sensitive point. It’s a huge and sore political point as well,” said Braam Naudé, the executive for investments at Liberty Corporate.

Naudé said while the point about providing the much-needed relief to workers was very valid, what’s missing in the conversation is the question of whether workers have enough saved to provide any form of relief in the first place.

“The bulk of members – in our stats it’s more than 90% – take all their money when they leave the employer,” said Naudé.

Because of this access to their savings numerous times in their working lives, Naudé said roughly two-thirds of Liberty Corporate’s umbrella fund members have R25 000 or less saved.

“We are sitting in a potentially once-in-a-lifetime pandemic scenario and the ability of the retirement fund savings to support people with their financial needs is very limited,” said Naude.

However, Parks said that this argument is trying to protect the interests of the investment industry because partial withdrawals could mean billions of outflows from pension funds. He argued that any small amount that workers have saved would make a material difference to those supporting relatives who have lost their jobs.

Liberty Corporate managing executive, Tiaan Kotze, said given the socioeconomic realities of South Africa, the retirement system does need to allow for some level of short-term support under compelling circumstances while striking the balance with the need to give workers a safety net in their old age.

“We are not arguing that there shouldn’t be access. But even with access right now, the system is not going to help much … We need a fundamental system that does give a level of access but also support long-term savings,” said Kotze.  

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