The retirement industry breathed a sigh of relief on Wednesday at the news that there has been significant progress on social security and retirement fund reforms, which appeared to have stalled last year.
Finance Minister Nhlanhla Nene said in his budget speech the long-awaited draft regulations for retirement tax reforms would be released in the next few months.
These will introduce a uniform tax regime and the preservation of provident funds on retirement by aligning the lump-sum withdrawal limit with that of other funds.
Following concerns from the trade union federation Cosatu, the implementation of these reforms was deferred for 12 months for further consultation. There had been no formal announcement by government, but there were concerns that the reforms might be delayed to 2017.
Social security reform
Cosatu had wanted clarity on social security reform, which labour believed needed to be implemented alongside tax reforms and Nene agreed to delay the process.
Apparently, to advance the process and encourage much-needed saving, the minister said the long-awaited discussion paper on social security reform would be released this year.
“Both health insurance and social security are vital concerns of all South Africans, and we look forward to public debate and engagement between stakeholders,” Nene said.
The first draft of default retirement reform regulations would also be published for public comment shortly, he said.
“These reforms have one central objective: to maximise the long-term benefits to retirement fund members, so that they can retire comfortably,” he said.
The principal consultant at Old Mutual, Michelle du Toit, welcomed the minister’s announcement.
“It was encouraging to see that he intended to continue the work initiated by former finance minister Pravin Gordhan and that it was moving forward,” she said.
“The decision not to implement some of the retirement reforms left the industry uncertain of how to move forward.”
But, she said, it was necessary to see what the guidelines would look like. She said there was discussion about having one large retirement fund to which employees who were not catered for by their employers would contribute.
“The idea of a low-cost fund that could bring all workers into the system is a very good one. They would not be forced to rely on a state pension,” she said.
David Gluckman, the head of social projects for Sanlam Employee Benefits, said he was encouraged by Nene’s comments.
“What he did in the budget was to commit to March 1 2016 as the date for the implementation of significant tax changes.”
He said Nene had undertaken a very difficult balancing act between reform and appeasing labour.
“He made an effort to assure members of the Government Employees’ Pension Fund, who were resigning and cashing in their pensions because of incorrect information, that their pensions would not be adversely affected by the reform process,” Gluckman said.
Nene said there appeared to be concern that government employees would not be able to access their money once the reforms took effect.
He said pensioners of the Government Employees’ Pension Fund, the Associated Institutions Pension Fund and the Temporary Employee Fund, as well as special and military pensions, would receive a 5.8% pension increase with effect from April 2015.
The problem of South Africans not saving and cashing in their retirement savings when they changed jobs, paying tax on it and having nothing left for their retirement, has been high on the government’s agenda.
The practice had often left employees who had worked their whole lives destitute.
This is why Gordhan and Nene have emphasised the need for preservation of these funds.
Nene said, from March 1 this year, retirement fund members would be allowed to defer the drawing of their retirement income until after their retirement date, if the retirement fund allowed it. This would provide more flexibility for retirement fund members and encourage the preservation of retirement assets.
But a maximum age at which withdrawals must be taken would be introduced, he said.