Ismail Momoniat, deputy director-general of Treasury.
- Treasury wants to introduce a limited window of access to the funds, under “very specific circumstances” according to deputy director general Ismail Momoniat.
- Cosatu proposes that 30% or R30 000 in retirement savings be accessed.
- South Africans however are already struggling to save for retirement.
Treasury may soon allow South Africans to withdraw a chunk of their pension savings before retirement, under “very specific circumstances”.
Last week, during a briefing on the Covid-19 support package, Finance Minister Tito Mboweni said that Treasury was in discussions with the National Economic Development and Labour Council (Nedlac) about proposed limited withdrawals from retirement funds – specifically to support those who have lost part of their income due to the Covid-19 pandemic.
But government wants to ensure preservation of savings to avoid liquidity problems, deputy director general Ismail Momoniat said at the briefing
“We are working with it, there [are] lots of complexities, and if we do not watch it there will be a rush to the door and we will create liquidity problems,” said Momoniat.
He explained that there needs to be a “very limited window of access” under very “specific” circumstances. South Africans already have a preservation issue as some, soon after resigning jobs and cashing out pensions, only leave small amounts left in reserves. Momoniat said that the deal therefore would require “limited” withdrawal and a tightening of preservation – which means funds cannot be withdrawn beyond what is allowed.
Treasury also envisions that everyone who works and earns an income will be compelled to be a member of a pension fund.
Once a framework on the matter is developed with different social partners, it will be tabled in Parliament.
Fin24 previously reported that DA MP Dion George had put forward a private member’s bill proposing amendments that would allow households hard-hit by the pandemic to use as much as 75% of their retirement funds as security for bank loans. Currently, the Pension Funds Act allows retirement savings to be only used as surety for home loans.
Labour federation Cosatu proposes that 30% or R30 000 in retirement savings be accessed – so as not to deplete members’ funds.
Mboweni said that it is important for people to remember that when they retire, their living standards decline and they would be relying on their pensions. He warned against people “obliterating” their pensions for current consumption and forgetting future needs.
“It is not the government trying to be nanny state, telling you what to do. It is a burden-sharing thing, that going forward, one should think about,” he said. Mboweni explained that government did not want to add further burdens to the social grant system and that while people were working, it was an opportunity for them to make provision for when they retire.
“To access [your] pension fund today to go buy a car which you might crash tomorrow is not very helpful at all,” he added.
Victoria Bucarizza of GIB Financial Services stressed that South Africans are already in a retirement crisis, and are not saving adequately for retirement.
“Any early withdrawal of funds simply exacerbates the retirement problem for that individual. The reduction in retirement assets is not just what is taken now, but also the future growth that those funds would obtain, which for younger individuals can be a substantial amount,” said Bucarizza.
There are, however, advantages from these measures – such as that it would be a “lifejacket” for the vulnerable. “Ultimately, government should be mindful not to cause unintentional harm to the very people it is looking to support with these changes. It is those individuals who are already financial stretched who stand to benefit the most from the successful implementation of such a plan, but also who would suffer the most,” Bucarizza said.
As for borrowing against pension funds – this could potentially allow consumers to access lower-interest debt, Bucarizza noted. “Since the loan would have a pension as security, lending institutions would be willing to offer more competitive rates than for ordinary personal loans or student loans.”
Bucarizza warned that these measures would place administrative burdens on trustees and impact regular operations of pension fund administrators.
“The administration would be immense if a large number of members applied for Covid[-19] relief simultaneously and the systems may not be adequately set up to manage this. This would trickle down to delayed processing and backlogs for multiple members requiring this money hastily.”