Pension changes for South Africa under the spotlight
Parliament’s Standing Committee on Finance has invited interested parties to submit written submissions on the Pensions Funds Amendment Bill.
Introduced by the opposition Democratic Alliance, the bill aims to amend the Pension Funds Act to allow pension fund members to access a portion of their fund before retirement as a guarantee for a loan.
The DA has described the draft bill as crucial in the fight for ‘people power over state power’ in South Africa.
“Individuals should be free to choose, in unison with the trustees of their pension funds, how their own financial assets are utilised when it comes to providing collateral for responsible loans,” it said in an explanatory statement.
“It is important to note, however, that this bill entails no prescribed asset function. Instead, it entails giving individuals the freedom to choose for themselves by alleviating state interference on their lives.”
How it would work
The bill would amend 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 Covid-19.
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.
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.
Presenting on the bill in parliament in March, the DA’s Dr Dion George said that the Covid-19 pandemic highlighted long outstanding issues, including the role of pension funds in the financial life of individual members.
It added that compulsory saving to pension funds crowding out shorter-term saving. He added that the mass conversion of pension funding arrangements from defined benefits to defined contributions began in the 1980’s, resulting in investment risk passed from employers to members.
While the changes will not act as a ‘silver bullet’, George said that there was an inherent problem in the system where South Africans are facing severe current financial hardship despite owning a financial asset.
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