Business Maverick


Government drags its feet on retirement benefits reform

Government drags its feet on retirement benefits reform
Cosatu has suggested that a ministerial direction be used to give workers access to an income replacement benefit for up to six months. (Photo: Gallo Images / Sowetan / Thulani Mbele)

Last week, National Treasury and Cosatu officials met for the third time since April to consider giving retirement fund members access to their savings to mitigate the loss of income due to the Covid-19 lockdown and subsequent economic downturn. However, there is still no consensus.

June was the last month in which employers and employees could access the Unemployment Insurance Funds’ (UIF) Temporary Employee/Employer Relief Scheme (Ters) benefits, and Cosatu is expecting more employers to retrench workers now these benefits can no longer be accessed. Yet, the government continues to drag its feet in adopting retirement benefit reform proposals that have been in the pipeline for years. 

Andrew Crawford, director at Seshego Benefit Consulting, says all parties, including the departments of labour, social development and finance, have agreed that the social security floor is incomplete and that retirement benefits should be made accessible once unemployment benefits run out.

He says this has been on the agenda of Nedlac and the Interdepartmental Task Team (IDTT) for over a decade, but has not come to any conclusion.

Business Maverick reported in June how pension and provident funds can lawfully amend their rules to provide for the payment of “special relief benefits” to members still employed by participating employers.  To facilitate these payments, all Parliament needs to do is make a few amendments to the pension funds and income tax acts.

“But it is almost mid-July now,” says Jan Mahlangu, retirement funds coordinator for Cosatu. “Workers aren’t asking for a favour but an income replacement through accessing their retirement funds, as a result of the lockdown, but nothing concrete has come out of discussions so far.”

He says the federation is disappointed that its written proposal, submitted to the National Treasury in April, to assist workers in this difficult time, hasn’t been resolved.

He indicated that another meeting is expected this week.

Treasury’s deputy director-general for tax and financial sector policy, Ismail Momoniat, remains silent on the matter.

Meanwhile, Cosatu has suggested that a ministerial direction be used to give workers access to an income replacement benefit for up to six months.

Cosatu wants to avoid the worst-case scenario in which workers resign to access their savings, as they would lose their jobs, cash out all their savings, and potentially pay tax on their withdrawals. Withdrawals over R25,000 on resignation are taxed. On retrenchment, members can access up to R500,000 tax-free.

Mahlangu says workers are simply asking for assistance from their deferred wages. 

“We are seeing workers resigning from their jobs as a result of pressures and frustrations, to access their entire retirement funds benefits, which is not a solution. But what do they do when their families are really struggling? We are on the ground, we are noticing this trend.”

Research released by Sanlam on Wednesday, however, which is much in line with documents released by the Association of Investments and Savings SA (Asisa), indicates that two-thirds of current contributors have less than six months’ worth of salaries tied up in retirement funds, should they be allowed to withdraw from or borrow against their retirement savings for financial relief during the pandemic.

The Benchmark survey indicates that 26% of employers/funds had suspended retirement fund contributions and 91% of consultants had at least one client who had already done so.

Sanlam’s annual Benchmark survey says when it considered the average salaries of these members, it found that if members could access these savings as a monthly income, the money would last less than six months.

The survey canvassed the views of 140 employee benefits consultants and 230 funds and employers.

Viresh Maharaj, managing executive of Sanlam Corporate Distribution, says although such a release will provide some form of relief, the maximum they will have access to is R50,000. This will only be a short-term measure, and is the only form of retirement savings for many in the first place.

He says the proposal is further complicated by the administrative burden of doing so and the potential run on investment markets that could ensue.

“Changing the legislation can also take a very long time,” he adds.

Sanlam says, according to their research, that the most popular form of relief was a temporary suspension of retirement fund contributions, which, in their view, is the best measure to take.

“Many workers needed financial support because of the reduction or complete loss of their earnings during this period. We explored the role that retirement funds can play to solve the immediate cash flow needs of members,” says Maharaj. 

The Benchmark survey indicates that 26% of employers/funds had suspended retirement fund contributions and 91% of consultants had at least one client who had already done so.

“We anticipate that these figures would have increased since the survey was conducted.

“A three-month suspension was the most popular period, followed by six or more months, which is indicative of the uncertainty of the return to normal. We expect many of these suspensions to be rolled over. 

“On average, these suspensions provide net cash flow relief to individuals of R1,500 per month, contingent on contribution levels and tax brackets. The long-term impact of the suspension on outcomes is also limited and our calculations indicate a 1-3% impact on final fund values, based on a six-month suspension and conservative assumptions.” 

In the context of meeting immediate needs, it seems that the suspensions are a relevant way to provide immediate relief without materially affecting long-term prospects, Maharaj adds.

 When questioned on the levers available to rebuild South Africa’s economy, the most popular option indicated in the Sanlam survey was the use of the large pool of unclaimed benefits in the industry to benefit poor communities. 

“This is a promising and potentially responsible use of money that is unlikely to be reclaimed by the majority of members.  The three next most popular responses all related to applying the capital of retirement funds to impact society and the economy by increasing asset allocations to sustainable infrastructure development, ESG investments and alternatives,” says Maharaj.  

Meanwhile, speaking at a virtual media briefing on Friday, the head of the ANC’s economic transformation committee, Enoch Godongwana, said that the party is in discussions with the pension funds industry and the Treasury regarding the use of retirement savings to finance government infrastructure projects. These discussions are on the back of the ruling party’s proposal to amend Regulation 28 of the Pension Funds Act. BM/DM


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