Finance minister Tito Mboweni caused much misunderstanding last week when he said he had instructed his officials to expedite the matter of enabling people to withdraw part of their pension as the matter had been “stuck in the works too long.” This created the impression that this could be done soon and quite easily, and within weeks people could have a lump sum of their retirement savings in hand.
That is not the case. While the matter has been stuck in the works for a long time, it is nowhere close to being completed. When discussions between the retirement industry, Treasury and trade unions have made sufficient progress, the Treasury will still have to draft a bill to put to parliament. That will, for instance, have to include public hearings. Change is at least a year away.
The withdrawals issue was first raised by Cosatu at Nedlac in May last year as part of discussions around financial relief for workers and households as a result of the Covid-19 pandemic and lockdown. The Treasury has long resisted the total withdrawal of pensions before retirement — it frequently happens when people resign from their jobs — and has been seeking to enforce greater preservation to boost national savings.
There are good reasons for resisting withdrawals. Almost half of all South Africans don’t save for retirement and many depend on the state once they reach retirement age. The savings industry claims that only 6% of people retire with adequate savings, a number which the Treasury also likes to mention.
Whether accurate or not, it is indisputable that South Africans don’t save enough. Few save for emergencies and household savings are generally to be found in pension and provident funds to which employees are compelled to contribute by employers. That is why the issue of pension withdrawals is such an emotive one: not only do workers rightly see it as their money, but it is also their only money.
Some consensus is being formed between the industry and the Treasury on what form partial withdrawals could take. The proposal is for a two-pot system with an accessible pool of up to a third, with a two-thirds pool that cannot be accessed. In exchange for allowing withdrawals before retirement, the proposal seeks to enforce preservation of the two-thirds until retirement age and which can only be accessed through an annuity.
A change along these lines came into effect for provident funds on March 1 after much opposition from Cosatu. Whether it will fly this time is hard to know. South Africans of all classes have grown used to being able to access a lump sum when they leave employment so they can use it to build a house or acquire some other asset.
If a similar arrangement, with all its provisos built in, is put in place for pension funds as well, there will be an overall gain for national savings. While the outflow of funds could be quite significant when the change comes into effect — 6-million fund members each withdrawing R25,000 would result in an outflow of R150bn — there are ways of staggering that risk.
As part of Nedlac’s proposed deal, the Treasury wants compulsory retirement savings for anyone who works. This too would be an excellent step, but how possible it is to enforce savings for casual and informal workers is debatable.
Pension reform is complex at the best of times and needs to be thought of with long-term social planning in mind. To be having such discussions in an environment where workers are under pressure to access money, and where expectations have been raised, is far from ideal. But there is still some way to go before decisions are final, despite Mboweni’s impatience.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.