News Column

Proposals spark panic

August 20, 2014

Special Correspondent

Workers are said to be resigning en masse to obtain their pension money for fear that the government's proposed retirement reforms will see their savings expropriated.

But Hannine Drake, senior associate at corporate law firm Bowman Gilfillan, says: "Workers must be properly informed on the implications of retirement reforms on their pension savings. Institutional stakeholders, including government, unions, employers and retirement funds, have key roles to play in explaining the facts in practical terms."

Drake noted that the National Treasury's reforms did not propose that the government administer or nationalise retirement fund monies that were administered by private sector retirement funds.

"The key premise of the reforms is that South Africans don't save enough. We tend to take short-term financial decisions that are to our long-term detriment by, for example, withdrawing our retirement savings every time we resign instead of preserving it for retirement," says Drake.

"The reforms are positive steps to protect members by improving fund governance, mandating trustee education and preserving pension savings for their intended purpose |- retirement."

According to the National Treasury, only 6 percent of South Africans will have enough savings when they retire.

Drake added that proposed limitations on the withdrawal of resignation benefits still had to go through the legislative process before becoming law. The implementation date, if any, was uncertain and was unlikely to be within the next two years.

However, limited changes unrelated to resignation benefits would take effect on March 1, 2015, she said.

An important change to note was that provident fund contributions made from March 1, 2015 by workers younger than 55 years would be treated the same as pension funds upon retirement. This meant that workers might only receive up to one third of that portion of the pension that they had accumulated after March 1, 2015 as a lump sum on retirement.

The remainder would be paid to the pensioner in annuitised payments over their lifetime. Pension funds already operated in this manner and the change would simply align provident funds with pension funds.

Because the change does not apply retrospectively, provident fund savings accumulated until March 1 next year may still be withdrawn as a lump sum on retirement. This change does not affect workers 55 years or older on March 1 next year and does not affect resignation benefits.

Cape Argus

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Source: Cape Argus (South Africa)

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