It’s happening again: the government has introduced measures that are partly aimed at easing the pressure on South Africans, but will turn out to be palliative. I’m referring to the retirement reforms that came into effect on September 1.
These reforms have imposed huge costs on the retirement fund industry, which was forced to make changes to comply with the reforms within a very short time.
The primary objective of the “two-pot” system, as the reforms are popularly known, is to nudge South Africans to hold on to their savings until retirement. To achieve this goal, the government has argued that it must allow fund members to access a portion of their retirement savings occasionally to deal with financial pressures.
The logic behind creating this access is that it will stop workers from resigning from work so they can get hold of their retirement savings. These resignations have historically been a problem most prevalent in national and provincial government. There’s no research I know of that shows this type of behaviour being much of a problem in the private sector.
This approach has been used before, to little effect. For decades workers have been permitted to use a portion of their retirement savings to buy, build or renovate their homes. If anecdotal evidence is anything to go by, this allowance has been abused.
The allowance had its genesis in the early 1990s, when the Mouton commission recommended the use of a portion of one’s retirement fund assets to finance, directly or as a guarantee, housing. The argument, backed by trade unionists, was that it was illogical for workers to reach retirement age and not have a home of their own.
The arrangement was that a worker would need proof, including building plans, of having hired a builder. Some retirement schemes would only pay the funds over to the builder. But people found ways around these requirements.
Tidy sum
One of my relatives, a builder, made a tidy sum. He sold building plans to employees who needed plans to support applications to their retirement funds for “housing assistance”. To avoid the funds being misused, some retirement funds issued a cheque in the builder’s name. My relative would cash the cheque, take his agreed cut and hand the balance over to the worker.
The allowance spawned a business opportunity for builders and boosted new and second-hand vehicle sales. Other retailers benefited too, sending their share prices up and leaving their executives and shareholders smiling.
I have often wondered whether public policymakers and leaders of trade unions have thought of looking into the success, or failure, of the housing scheme.
Now the government is pushing the two-pot reforms to ease the cost-of-living pressures on retirement fund members. Trade union federation Cosatu has gone further, calling on the government to create a special tax dispensation for low-income workers so they can take home a bigger share of their allowance from the savings pot.
The problem is that the government is addressing the symptom — indebtedness — not the disease. Workers will rush for their savings kitties this year, reduce debt, and then come back next year after taking on more debt. Of course, lenders will be after them too, whispering sweet financial words into their ears.
Become worse
One of the contributing factors to indebtedness is the high cost of living in SA, which has become worse as incomes have lagged far behind increases in costs such as those for food, energy and transport. There are other drivers too, such as the penchant for a lifestyle that is way above one’s income that is often driven by the desire to keep up with the Joneses.
The government has yet to come up with a plan to address the cost-of-living crisis, even though the National Planning Commission flagged the issue in 2018. It pointed to the cost of food, utilities and transport as among the biggest factors.
Using Stats SA data it split South Africans into three groups — the poorest 40%, a middle 40% and the richest 20%. Food accounted for 30% of the expenditure of the poorest group, compared with 7% for the richest. This means increases in food prices pinch poor South Africans most.
Allowing the poorest South Africans to access a small portion of their retirement savings to reduce debt only deals with the symptom, not the cause — the high and rising cost of living.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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