“We have noted public concerns that are fuelled by rumours that government will take away people’s hard-earned pensions and prevent them from accessing their funds. These rumours are based on a misunderstanding of Government’s proposals,” said the National Treasury.
(WATCH VIDEO: S.Africa proposed retirement reforms)
“We would like to assure citizens that government has no intention to nationalise people’s pension or provident funds or prevent them from accessing their money. Instead, government is proposing important measures to lower charges on the pension funds of workers, to ensure that they maximise their pensions.”
According to treasury, due to the fact that only an estimated six per cent of South Africans are able to replace their income fully at retirement, government wants to encourage workers to keep their savings until they retire, and to convert some of their retirement savings into income at retirement.
“South Africa’s national savings rate is low, and savings by households are the lowest. Saving helps households to retire comfortably and reduce excessive reliance on debt,” it said.
“It also enables workers to afford large expected and unexpected expenses like paying for education for children, medical care, and for putting down a deposit for a house. Lack of savings can also encourage excessive indebtedness.”
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The retirement reform process is currently ongoing and while treasury indicated that retirement saving is a popular form of saving in South Africa, it still believes that there are several major challenges that need to be addressed.
“One of the challenges of the current system is that it makes it too easy for workers to cash out their retirement savings when they leave their employer or change jobs. For example, Old Mutual states that 93.5 per cent of members who were paid withdrawal benefits in 2013 opted to take cash rather than preserve their benefits,” treasury said.
“This means that individuals end up not having enough money for their retirement because the money is not given sufficient time to grow. Government’s proposals seek to encourage pension fund members to preserve their money in their own funds or with a financial institution, and to also allow some access to the funds.”
Members of provident funds currently get their entire accumulated retirement money as cash at retirement, which can leave them vulnerable to poverty in the years following their retirement.
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“Government seeks to encourage members of provident funds to take a major portion of their retirement money as monthly pension payments instead of a once-off lump sum,” said treasury.
However, it added that the alignment between provident and pension funds would take a long time to have an effect and that it would not negatively affect provident fund members who are currently close to retirement.
“All provident fund members will still be able to take all their retirement money they would have accumulated up to 1 March 2015 as a cash lump sum when they go into retirement.”
Treasury also stated that the reforms on provident funds are now law contained in the Taxation Laws Amendment Act and will come into effect on 1 March 2015.