Plans to make retirement savings accessible to fund members have received a lot of attention lately, but Treasury is still very much aware of the need to protect these funds.
Legalbrief reports as follows on an article published in BusinessLIVE.
A planned overhaul of SA’s retirement-fund rules is primarily aimed at encouraging people to save more and will provide very limited scope for them to access their pensions early, says deputy DG for tax and financial sector policy at the Treasury, Ismail Momoniat.
The reforms have been on the agenda for almost a decade, but gained momentum after the Covid-19 pandemic upended the economy and pushed the unemployment rate to a record high. That has led to mounting calls on the government to make retirement provisions more readily accessible – a step that could have dire socio-economic consequences if mishandled and pensions are frittered away.
‘The focus of our retirement reforms is not on withdrawals, the focus is on getting South Africans to save more and preserve their contributions,’ Momoniat said. ‘We haven’t finalised the details yet, but the point is we’ll increase the sweat factor so people apply their minds before withdrawing their funds.’
Chileans have demonstrated why adjusting pension-fund rules needs to be approached with extreme caution. They have withdrawn about $50bn in savings following the adoption of enabling legislation, draining funds from capital markets and raising concerns about the adequacy of their retirement provisions.
South Africans are currently only able to withdraw or transfer their pension funds if they resign, retire or become unemployed. The government may tweak tax rules to discourage people from drawing down their savings, or cashing out when they change jobs, and will only allow them early access to a portion of what they’ve set aside.
These reform processes were delayed as a result of protest against proposed changes to provident funds which would limit the full pay-out on retirement or service termination. It may very well be that allowing limited access to these accumulated funds may be a tool to overcome resistance to the proposals.
