Plan for early pension access in South Africa could do more harm than good, authorities warn

Financial authorities have warned that the proposed Pensions Funds Amendment Bill could have a harmful impact on financial savings in South Africa.

The bill, which was tabled by the opposition Democratic Alliance, will allow retirement fund members to access a portion of their savings in cash before retirement as a guarantee for a loan.

The bill makes provision for this by amending the current Pension Funds Act to allow pension fund members to obtain a loan, secured by a guarantee from a registered pension fund, to alleviate financial pressure during an emergency.

In this case, the bill makes direct reference to the Covid-19 emergency or any other emergency similar to the pandemic.

Regulatory groups including the Banking Association of South Africa, the Association for Savings and Investment South Africa, and the National Treasury have warned that if a member ends up defaulting on a loan, it would substantially erode their retirement savings.

In an overview of responses before parliament on Tuesday (24 August), the groups also warned of a historically poor savings culture in South Africa.

“Incurring substantial indebtedness could certainly have a significant impact upon the pension fund member’s financial security over the long-term, including potentially into the retirement years.”

“Retirement savings by South Africans have been extremely low for a number of years and have not shown any signs of improvement. The recent 10X 2020 South African Retirement Realities Survey found that 49% of people surveyed said that they did not have a retirement plan.”

The groups also warned that the bill could further erode policy interventions that have been developed to discourage leakage from retirement savings.

Other issues raised include:

  • Retirement savings used as a security for loans will result in further indebtedness of new members;
  • It will be difficult to supervise or monitor what the money will be used for;
  • There are questions around the interest rate for the loan and how it will be managed;
  • The potential abuse of loans;
  • No economic or financial impact study has been done on the bill.

New system 

While Treasury has shot down the DA’s proposals, it has published its own plan for a new retirement system that will allow people to access a portion of their savings early in times of a financial emergency.

Treasury has described it as a ‘two-bucket’ system:

  • The first bucket for longer-term financial security –  Members must preserve their contributions and the compounded growth invested. They will not have access to this portion of their funds until they retire.
  • The second bucket for short-term financial relief – Members may access the fund value for emergencies even while they are employed and a member of the fund.

Treasury said the government has engaged with trade unions, retirement funds, regulators and other stakeholders to discuss how to increase savings and improve preservation and allow limited withdrawals, without creating liquidity and investment risks.

“Any consideration for early access will require legislative and fund-rule amendments because the current law and policy prohibits any pre-retirement access to retirement savings unless an employee resigns or is retrenched.

“It is expected that the earliest that any changes would become effective for a new withdrawal mechanism is 2022. However, the withdrawal process will not cover the Government Employees Pension Fund (GEPF), as it is not regulated under the Pension Fund Act, and hence no Covid-related withdrawals will be allowed.”

While the changes have largely been welcomed, analysts have warned that the system will require significant changes to existing legislation as well as an in-depth public consultation process.

Rosemary Lightbody, a senior policy advisor at Association for Savings and Investment South Africa (Asisa), said changes to the current retirement benefit access rules would require amendments to the Income Tax Act, possibly also the Pensions Fund Act, and various other legislation.

In addition, administrators of retirement funds would need to make extensive system changes before a “two-bucket system” can be facilitated.

“We are sympathetic to the hardships endured by South Africans because of the Covid-19 pandemic and the lockdowns, but regrettably, there is no possible “quick fix” within the current legislative framework. We support a solution that will ultimately help retirement fund members during times of need while at the same time requiring preservation until retirement.

“However, it will be important to ensure that vested rights of current retirement fund members are protected.”

Lightbody said Asisa members have been inundated with queries from concerned retirement fund members and shareholders. “People are concerned that their current ability to access retirement benefits will be impacted.”


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Plan for early pension access in South Africa could do more harm than good, authorities warn