Proposed amendments to retirement savings rules must be intentional and specific
Vusi Maswili and Paul Mafisa of ASI Financial Services
Former Minister of Finance Tito Mboweni suggested recently that workers should be able to access a portion of their retirement funds – up to one third – provided that those doing so would use that money ‘in a responsible manner’.
He noted that government had been engaging at length with trade unions, regulators, and other stakeholders to reach agreement on how this could be done, expanding the access to pension savings that is already in place when an employee leaves a company while ensuring that citizens still have sufficient savings for their retirement.
Given that his successor, Minister Enoch Godongwana, has said that he will not be changing any policy direction now that he’s taken the helm of the ministry, it’s likely that this suggestion will be pursued, giving financially strapped South Africans a lifeline to help with the likes of paying off a bond (or portion of one), or helping them rise above crippling debt.
The spirit of this move makes sense: South Africans are under more financial pressure than ever before, and as an extreme example, it doesn’t makes sense to lose the roof that’s currently over your head now because the regulations of your retirement fund are making sure that you have somewhere to live when you stop working.
The examples given by the Minister, such as settling a mortgage or other debt, are appropriate – but any changes that are put in place must consider the characteristic that makes South Africans both famous and notorious: where there is a loophole, we will find a way to wangle through it, and where there isn’t a loophole, we will find a way to make one!
For this reason, ASI Financial Services calls on the Department of Finance and all other stakeholders involved in the consultations around these proposed changes to be intentional and specific about the conditions under which pension fund contributors will be able to withdraw funds without leaving employment, and before they retire.
Before any proposals are put forward for ratification, those doing so need to be clear about what their intentions for making the changes are. Would these changes be designed to relieve short-term debt burdens that are impacting the quality of day to life – or to lift the weight of a long-term debt?
Any rules that govern any early withdrawals need to be specific too – even to the point where proof of where the funds are destined should be provided – and then even further checks and balances put in place to prevent this money being used for consumables, entertainment, or even gambling, for example.
Another consideration that needs to be factored into this process is how pension fund monies are distributed in the event of a divorce – is it fair for one party to have early access to saved funds, when the other party was counting on having access to their share of those funds, as defined by a divorce agreement?
It’s a fine line that’s being tread here: even though it has been invested into a carefully regulated retirement vehicle, money invested by an employer on behalf of an employee does belong to the individual, and it could be argued that they should have a say in how and when that money is used.
However, South Africans have a notoriously low savings rate – the country’s Gross Savings Rate fell to 11.6% during June 2021, compared to a global average of nearly 25%. The country’s high unemployment figures make it clear that the State already carries a massive social welfare burden and needs to take proactive measures to minimise the number of aged citizens that depend on it for survival, in the future.
It’s for this reason that we welcome suggestions of a limited withdrawal amount, in tandem with mandatory preservation, but that we still call on those considering these changes to be intentional and specific at every step in this process.
Source: FA News https://bit.ly/Proposedamendmentstoretirementsavings