Workers in financial distress who hope for early access to a portion of their retirement savings while still employed will not be able to do so until at least 2022, the Treasury said.
In a statement on Wednesday that sought to clarify a proposal to allow partial pre-retirement access to pensions during emergencies or extraordinary circumstances, the government also said SA’s largest pension pool, the R1.9-trillion Government Employees Pension Fund (GEPF), will be excluded from the proposal.
The exclusion of the GEPF, which will rule out its 1.2-million members, who are mostly public servants, has been roundly condemned by Cosatu.
The labour federation said that the proposed reform should apply to all workers “whether they are in the public service or the private sector”.
The question of how to allow individuals early access to their money after the onslaught of Covid-19 — which saw millions of workers either lose their jobs or suffer pay cuts — gained impetus after Tito Mboweni, who left his role as finance minister after last week’s cabinet reshuffle, said the Treasury was moving to expedite an issue that had been “stuck in the system for too long”.
The Treasury has been working on overhauling the retirement savings framework to create “a two-bucket system” that will allow limited withdrawals, together with mandatory preservation — including preventing withdrawals when changing jobs, as is allowed at present — and wider coverage.
“Any consideration for early access will require legislative and fund rule amendments because the current law and policy prohibit any pre-retirement access to retirement savings unless an employee resigns or is retrenched,” the Treasury said.
“It is expected that the earliest that any changes would become effective for a new withdrawal mechanism is 2022.”
Players in the savings industry have warned that the proposals could potentially create liquidity risks for the sector if a flood of members rushed to make early withdrawals. It would also push down the value of investments and harm the workers for whom it is supposed to provide relief.
They also said that it could depress SA’s low savings rate, leaving more retirees dependent on taxpayers. Only about 6% of people are able to retire with adequate savings, while one industry survey suggests that close to 50% have no retirement plan at all.
“Redesigning the retirement system to allow for limited withdrawals with mandatory preservation is complex and requires thorough consultations,” the Treasury said in a statement.
The step excludes the GEPF, which is the largest investor on the JSE through the Public Investment Corporation, because it is not regulated by the Pension Fund Act.
The GEPF, which is a defined-benefit fund, is governed by its own legislation.
“Public servants might not have lost jobs but they also have to support large numbers of relatives who have lost jobs and wages in this economic recession,” said Cosatu’s Matthew Parks. Many public servants are also “highly indebted and should be allowed access to their own money in moments of need”, he told Business Day.
The Treasury’s “pre-emptive” statement had undermined negotiations at the National Economic Development and Labour Council and set up “roadblocks” to discussions, when “a new finance minister [Enoch Godongwana] is barely in office”, he said.
The Treasury’s stance is “going to create animosity because public servants, like other workers, support our proposals and are experiencing difficult times”, Parks said.
The government’s “two-bucket system” will enable the restructuring of future contributions. One bucket is to be preserved until retirement and the second bucket will allow for pre-retirement access during emergencies or extraordinary circumstances, it said.
“Whilst these measures cover pension and provident funds, a harmonised approach on withdrawals is also being considered for retirement annuities,” it said.
Further announcements and the release of the proposed measures for public comment and consideration will be made shortly before or at the 2021 medium-term budget policy statement. Legislative amendments will be introduced in parliament thereafter.
Members of retirement funds should not try to withdraw their existing savings as these funds are legally not empowered to allow pre-retirement withdrawals until the law is changed, the Treasury said.
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