The National Treasury did not support the Pension Funds Amendment Bill that aims to allow workers who were in financial distress to access their pension savings through loans, Treasury’s tax and financial sector policy head, Ismail Momoniat, said on Tuesday.
JOHANNESBURG – THE NATIONAL Treasury did not support the Pension Funds Amendment Bill that aims to allow workers who were in financial distress to access their pension savings through loans, Treasury’s tax and financial sector policy head, Ismail Momoniat, said on Tuesday.
This was even though workers were going through a period of severe financial distress caused by the effects of the Covid-19 pandemic because of salary cuts, retrenchments, and illness and death in families, trade union Cosatu told Parliament’s standing committee on finance yesterday.
Momoniat told the committee that the aim of retirement reform was to encourage savings and reduce poverty, because South Africa had a very low savings rate, and the household savings that did take place were mostly contractual through the deduction of pension fund contributions from salaries.
He said pension fund reform was necessary, because the many loopholes in the retirement regulations allowed people to cash in their entire pension, the governance of many funds was poor, there were too many pension funds, and the aim was to encourage more annuitisation, so that people could receive a regular monthly income in their old age.
He said it was critical that any access to retirement savings did not undermine the long-term objectives of the fund, and the Treasury was concerned that members would wipe out their funds by being allowed to take out loans.
Momoniat said the bill was also likely to increase the indebtedness of employees, and it did not specify how this indebtedness would be dealt with or repaid.
The bill would also mean that retirement funds, which typically invest for the long term, and also in critical infrastructure, would have less money to invest because of having to pay out for these loans, said Momoniat. The bill also needed to be accompanied by a suite of tax and other measures, he said.
A spokesperson for the Association for Savings and Investment South Africa (Asisa) – the organisation’s members are investment service providers to the pension fund industry – said the bill would have very limited success, because the National Credit Act regulations specify that a person who takes out a loan must have the capacity to repay it. Asisa said the bill “will not have a good outcome”.
Some 60 percent of all the pension members with funds administered by pension funds using the services of Asisa members had less than R50 000 in their pension funds, and reducing this by any percentage for a short-term loan did not accord with the purpose of a pension fund.
Cosatu’s deputy parliamentary co-ordinator, Matthew Parks, told the committee that their members were facing great distress through one of the most severe economic disasters, and the proposals in the bill were urgently needed.
He said the proposal for a 75 percent limit to the loan amount on pension funds should be reduced to 30 percent, so as not to deplete the employees’ future pension funds.
Parks also told the committee that many workers could not afford to take on more debt, as proposed in the bill, and that the union’s proposal was that the bill allow members to take out a loan or make a simple withdrawal on the pension fund.
He said the government should also consider not collecting tax on these loans, considering they would be issued to provide assistance to people who were in financial distress.
He said the union believed further consultation was necessary on the bill, and the National Treasury should draw up its own draft bill if necessary, but the union hoped that a final act could come into effect from October 1 next year.