New pension law proposed for South Africa

The Democratic Alliance (DA) has called for comment on its proposed Private Member’s Bill (PMB) to amend the Pension Funds Act.

The bill aims to amend the current Pension Funds Act to enable pension fund members to access a percentage of their pension fund before retirement as a guarantee for a loan.

This will help alleviate financial pressure during an emergency such as the coronavirus pandemic or any other emergency similar to Covid-19, the party said.

“The unfortunate outbreak of the Covid-19 pandemic in South Africa has dealt a crippling blow to our country’s economy and has left many South African families in financial ruin. A lifeline such as this would save many families,” the DA said.

“By enabling a member to access a pension-backed loan, that member will be able to leverage their pension fund investment before their retirement date, without eroding their provision for eventual retirement.”

The DA said that lending institutions will be enabled to offer loans to pension fund members at competitive interest rates and over extended or deferred payment periods, given that the loan is fully guaranteed.

“The draft bill provides for a registered pension fund to offer a guarantee to a pension fund member of a maximum of 75% of their share in the value of the fund.

“By enabling a member to access a pension-backed loan, that member will be able to leverage their pension fund investment prior to their retirement date, without eroding their provision for eventual retirement.”

The ANC on pensions and prescribed assets

The ANC’s head of Economic Transformation, Enoch Godongwana, recently spoke to Alexander Forbes about the party plans for prescribed assets in South Africa.

Buzz around prescribed assets came about following the ANC’s 2017 policy conference – and subsequently its election manifesto in 2019 – where the party listed the introduction of ‘prescribed assets for pension funds to mobilise funds from financial institutions for social infrastructure’.

The announcement incited concerns from investors and members of retirement funds because of the possible implications it could have on investment portfolios and investment outcomes in the country.

Godongwana explained that the policy of prescribed assets came as a result of the challenges in South Africa, which have resulted in sub-optimal economic growth.

“Unemployment and the country’s recent credit rating downgrade to junk status are just some of the issues that have created this economic environment,” he said. “We have learnt that there are two main problems that have led to this precarious economic and social environment that we find ourselves in.”

Godongwana said that there is a high level of underdevelopment and poverty in the country that needs attention, and this is where infrastructure plays a critical role.

The central point of contention is how this infrastructure will be funded – and if prescribed assets would be introduced to force the private sector into participating in capital provision.

The possibility of prescribed assets was referred to as something ‘to be investigated’ and it is not something that could be instated without substantial consultation and a robust review process by the government.

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