Legislation will be introduced to allow early access to one’s pension, but it’s not an end-of-year bonus.

In the medium-term budget address, Finance Minister Tito Mboweni confirmed that National Treasury will be introducing legislative changes to allow early access to retirement funds in the event of a major economic disaster such as the COVID-19 lockdown.

Treasury confirmed that it “has received a number of proposals from taxpayers and some NEDLAC social partners, to enable limited pre-retirement withdrawals from retirement funds, especially during times of a disaster like the COVID-19 pandemic.”

However, this will not be an early Christmas present as the legislation will only be amended next year and will “allow for limited withdrawals under certain circumstances, but linked to mandatory preservation requirements.”

This indicated that further legislation around preservation is on the cards as well as the introduction of auto-enrollment to widen the retirement-fund net to improve retirement outcomes.

The South African Retirement Reality Report (RRR20) complied by 10X Investments found that 70% of people surveyed are concerned they would not have enough money in retirement, and nearly half had no retirement savings plan.

Nic Horn, director at specialist wealth manager Citadel says in the current situation where people are financially destitute, it makes sense to be able to access some of these funds.

However, he warned that given South Africa’s poor savings rate, government needs to use legislation to instil discipline in planning for retirement.

“If you take those funds too early it has an enormous impact on your retirement. Those last five to seven years before retirement have the biggest impact on your retirement fund. It could double your final retirement benefit.”

As part of ongoing retirement reforms, Treasury confirmed that the annuitization of provident funds will take effect in March 2021. Members of provident funds will not be able to take their full retirement value as a lump sum and will have to purchase an annuity with two-thirds of the fund. This is in line with the regulations around pension funds and retirement annuities.

However, this will not be applied retrospectively and only affects new contributions made after March 2021. Any funds that have already accumulated in a member’s provident fund up to March 2021 will still be available to be withdrawn on retirement.

In terms of discussions around Regulation 28 of the Pension Funds Act, Minister Mboweni confirmed that government has initiated a process to look into allowing retirement funds to increase their exposure to investment in infrastructure beyond the current limits imposed by Regulation 28.

The Minister made it clear that this is not a compulsory investment and these investments would be at the discretion of the board of trustees of retirement funds who should at all times act in the best interests of their members. This was a clear signal that prescribed assets are not being considered at this stage.

Malusi Ndlovu, General Manager at Old Mutual Corporate Consultants, believes this is a  positive development as it enables retirement funds to support the infrastructure-led growth recovery outlined by the President.

Ndlovu says that the infrastructure-led growth programme could not be funded by government alone and accessing a portion of the R4 trillion of retirement assets would provide funding for urgently needed infrastructure, as well as returns for members.

“There has been a very firm commitment by the Minister that trustees are the ultimate decision-makers and will act in best interest of members. This drew a line in the sand on prescribed assets. We feel comfortable that investments are safe.”

Our retirement crisis in numbers

The South African Retirement Reality Report (RRR20) commissioned by 10X Investments revealed some startling facts:

• 49% of South Africans have no retirement plan at all; in 2019 the figure was 46%.
• More than 70% of people across all income brackets expressed high levels of concern about having enough money to live on during their retirement years.
• 12% felt sure they would have enough.
• The vast majority of survey respondents (77%) said they would just carry on working.
• The savings and investment gap between men and women persists and, by some counts, is getting wider.
• Women are worse when it comes to saving, with 53% saying they don’t have a retirement plan.

This article first appeared in City Press.