3 retirement and pension changes South Africans should keep an eye on: economist

While the formal introduction of asset prescription is unlikely in South Africa, certain elements of the ANC are likely to continue to push this narrative, says Jeff Schultz, senior economist at BNP Paribas South Africa.

Schultz pointed to the recent green paper published by the Department of Social Development, which proposes a ‘national social security fund’ with compulsory contributions of up to 12% of qualifying earnings.

“The green paper was met with fierce criticism from the Treasury and the local pension fund and asset management industry that was not consulted on its release or content. The green paper has subsequently been withdrawn.”

While the proposal was always likely to be a non-starter, Schultz said it magnifies the ongoing debate and disagreement on this matter within cabinet.

“We see it undoubtedly as another attempt to force a form of asset prescription as a means to help fund more populist spending agendas such as the national health insurance and a basic income grant – both of which featured prominently in the department’s no retracted green paper,” he said.

Retirement fund collateralisation 

An additional development to keep an eye on are proposals by the Democratic Alliance to allow individuals to collateralise part of their retirement savings. The Pensions Funds Amendment Bill is currently being considered in parliament.

It will enable retirement fund members to access a portion of their retirement savings in cash before retirement as a guarantee for a loan.

The DA has proposed that the law be amended to allow retirement fund members to access up to 75% of their retirement savings as security for a bank loan, instead of the current law where members can use their savings as surety to obtain a home loan only.

“While this has been met with pushback from the Treasury, former finance minister Tito Mboweni alluded to a temporary window to allow individuals to access a portion of their retirement savings to help pay off and meet obligations given the current poor socio-economic conditions,” Schultz said.

The chairperson for the Standing Committee on Finance, Joseph Maswanganyi, said towards the end of last month that the committee will continue processing the bill and if National Treasury comes with another initiative, the committee will allow it to take its course.

“We don’t what to be seen as stifling the process of the private member’s bill,” Maswanganyi said.

Regulation 28 

The more likely, and far less threatening, pending change to retirement fund legislation will be the finalisation of the recent draft amendments to Regulation 28 of the country’s pension fund act, said Schultz.

This specifically deals with investment limits for the local pension fund industry and aligns with the Treasury’s intention to provide a more conducive environment to attract investment geared specifically at infrastructure, he said.

This includes introducing a 45% upper limit for pension fund exposure to infrastructure assets and increasing the infrastructure investment limits for private equity investments.

Schultz said that this change is likely to be introduced by the end of 2021 or within the first half of 2022.

Read: ‘Large and unpopular’ tax hikes the only way to fund South Africa’s basic income grant

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3 retirement and pension changes South Africans should keep an eye on: economist