London economics research firm Capital Economics says one benefit that may accrue from pension reform in SA is that workers would not have an incentive to quit jobs to access retirement savings to meet pressing needs.
The two-pot pension reform is set to be implemented in September, six months later than the initial March 1 date which the industry said was too soon.
Leah Fahy, an economist at Capital Economics, said in a note to clients that while similar reforms in Chile helped to supercharge its post-pandemic recovery, she doubts that would happen in SA.
“Due to the size of the informal sector and high level of unemployment, only a quarter of working-age South Africans are currently members of retirement funds. And coverage is, unsurprisingly, heavily skewed towards higher earners (whose savings rates tend to be higher). Half of pension contributors are in the top 30% of the income distribution,” she said.
“Lower-income earners are most likely to withdraw ‘seed funding’. Indeed, a similar pension withdrawal policy was implemented in Chile in 2020 and 2021, and individuals with higher account balances and earnings tended to make fewer withdrawals and take out smaller sums relative to their starting balances.”
The National Treasury first proposed changes to SA’s retirement regime in 2022, with the aim of enabling limited access to retirement fund savings before retirement.
The Draft Revenue Administration and Pension Laws Amendment Bill will allow members of retirement funds to access up to a third of their pensions savings once a year, in the event of emergencies, while preserving the other two-thirds for retirement.
The mooted system has not been without critics saying it will result in long-term pain if not handled with care. According to Sanlam’s 42nd Benchmark Report, 57% of respondents were sceptical about the new retirement system.
“While the policy seems promising, there remains cause for reservation. In particular, the implementation of similar pension systems elsewhere has had mixed results,” said Fahy.
“Malaysia also has a two-pot system. During the pandemic, the government expanded the circumstances under which contributors could dip into their savings pot.” Resulting withdrawals left more than “80% of contributors with insufficient savings to live above the poverty line after retirement”.
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