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- Cosatu is pushing hard for the Pension Fund Law to be amended to allow members to access their savings.
- Finance Minister Tito Mboweni did not mention this in his budget speech, but discussions continue.
- The amendments are a source of great anxiety for pension fund managers who could face unimaginable outputs.
The retirement savings industry enthusiastically follows Finance Minister Tito Mboweni’s speech every year, if not for anything else, to advise savers on how to maximize their tax benefits when tax rates and adjustments are announced. fork.
The 2021 budget speech, however, was game-changing for the industry. The automatic enrollment of workers in the retirement plans that the industry has been advocating for a long time and the annualization of provident fund benefits, which has been delayed time and again in the past, finally went into effect on 1 March.
However, a crucial announcement was missing in the Budget speech that could have sent retirement savings plummeting: the way forward for the 2020 Pension Fund Amendment Bill, which allows workers partially access your retirement savings in cash.
In the Budget Review brochure, the Treasury briefly mentioned proposals to allow people partial access to their retirement savings. He said the government continues to engage with unions, regulators and other stakeholders on this.
Calls for the government to allow workers access to their retirement savings come both from the ruling party’s alliance partner, the Congress of South African Trade Unions (Cosatu), and from opposition banks.
The DA introduced the Private Members’ Pension Fund Amendment Bill 2020 in Parliament in November, while Cosatu is still waiting for the National Treasury to present its bill on the matter or propose some amendments to the bill. of private members presented by DA.
The DA proposed that the government amend the law to allow workers to use up to 75% of their retirement savings as collateral for any bank loan, and not just mortgages. Currently, the Pension Fund Act allows members of retirement funds to use their savings as collateral for a home loan only.
Cosatu, on the other hand, asked the government to allow members of retirement funds to take up to 30% of their savings in cash. Cosatu’s deputy parliamentary coordinator Matthew Parks said the Treasury had already agreed to this in principle last year, prompting Mboweni’s mini-budget commitment to come up with legislation allowing it in 2021 under certain circumstances.
Cosatu is pushing for amendments to be tabled in April
Cosatu was eager for the bill to accelerate given the urgency of the relief it is trying to provide to households whose income has been slashed by a lack of bonuses, salary cuts 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, the Treasury must present a bill in Parliament no later than April. The government agrees with us. in principle, but it doesn’t move fast enough, “Parks said.
Cosatu hopes to meet again with the National Treasury next week to try to speed up the process.
Parks said his concern is that if the amendments to the Pension Fund Act take too long, workers who are struggling will begin to resign to withdraw all their savings, a situation that the labor federation, the government and the management industry of pension funds want to do. avoid.
Uncapped massive withdrawals would be detrimental not just to retirement managers and investment firms, but to the entire economy, given investment by pension funds in JSE-listed companies, infrastructure projects, and other capital markets.
While there are material differences between Cosatu’s proposal and the private members’ Bill, Park said the two can easily merge.
That would mean amending the Private Partners Bill that is already in the Finance Portfolio Committee, reviewing the percentage of their savings that partners can access as loan guarantees or cash. Cosatu feels that 75% is too high given South Africa’s already dire levels of retirement savings. Retirement fund managers report that only 6% to 8% of workers save enough to retire comfortably.
A panacea or a sure way to create more dependency on old age grants?
While Cosatu and the prosecutor have high hopes for the bill, the pension fund management industry is nervous about the disruption it could cause.
Already trying to understand a new administrative burden of managing separate provident funds for members due to annuity rules that went into effect on March 1, administrators argue that their systems are not designed to handle another layer of complications than usage. of pensions as loan guarantees. I could bring.
Nor would they be able to cope with the volumes of withdrawals that could occur if people were allowed to partially withdraw their savings.
But many do not want to put their heads in the block in this debate. After all, these amendments can mean the difference between keeping the roof over people’s heads and hanging workers to dry in the most desperate moments.
“It is a very sensitive point. It is a huge and painful political point as well,” said Braam Naudé, an investment executive at Liberty Corporate.
Naudé said that while the point about providing much-needed relief to workers was very valid, what’s missing from the conversation is the question of whether workers have enough saved to provide some kind of relief in the first place.
“Most of the members – in our statistics it is more than 90% – take all their money when they leave the employer,” Naudé said.
Because of this access to their savings on numerous occasions in their working life, Naudé said that approximately two-thirds of the Liberty Corporate umbrella fund members have savings of R25,000 or less.
“We are in a potentially once-in-a-lifetime pandemic scenario and the ability of retirement fund savings to help people with their financial needs is very limited,” Naude said.
However, Parks said this argument is trying to protect the interests of the investment industry because partial withdrawals could mean billions of pension fund outflows. He argued that any small amount that workers saved would make a substantial difference to those who support family members who have lost their jobs.
Liberty Corporate Managing Executive Tiaan Kotze said that given the socio-economic realities of South Africa, the retirement system must allow for some level of short-term support in pressing circumstances, while striking a balance with the need to provide workers a safety net in their old age.
“We are not arguing that there should be no access. But even with access right now, the system is not going to help much … We need a fundamental system that provides a level of access but also supports long-term savings,” he added . Kotze said.
