Retirement reform gets cool reception

The case for retirement reform seems incontrovertible. South Africans leaving their jobs can cash in their retirement savings or transfer the money into a preservation fund.

And Niel Fourie, the Actuarial Society of South Africa’s public policy actuary, noted that the 2012 Alexander Forbes Member Watch Survey showed less than 6 percent of employees, aged 20 to 25, preserve their retirement savings when changing jobs; and less than 10 percent of those in the 30- to 40-year age group.

Government faces increasing demands on its resources and must limit the need for the state to provide for the elderly. So the Treasury proposes to remove the soft option, limiting access to retirement savings probably from 2015.

But the new rules will only apply to contributions made after the start date. Previous savings and growth on those savings will remain accessible in perpetuity, according to David McCarthy, a specialist on retirement policy in the Treasury. This provision is to remove the incentive to workers to resign and withdraw their retirement savings ahead of the deadline.

But, in a country where unemployment is high and chronic, attempts to persuade workers to preserve their retirement benefits are bound to be resisted. So the Treasury’s proposals have had a cool reception from the three major trade union federations, Cosatu, Federation of Unions of SA (Fedusa) and National Council of Trade Unions (Nactu).

Nactu general secretary Narius Moloto argued that people losing their jobs needed access to savings to tide them over until they got another. In other words, a pension payout is a form of social security.

McCarthy said this need had been taken into account. People would be allowed to make one withdrawal of 10 percent of the initial preservation amount a year. Moloto responded that this might not be enough.

Cosatu describes the reforms of the retirement funding system as “piecemeal”, and has called for retirement reform to be a part of comprehensive social security reform. This aspect of reform will be dealt with in a paper from the interdepartmental task team on social security, still to be released.

Koos Bezuidenhout, president of Fedusa, explained that the unions were waiting for the Treasury to publish its final paper, which will give insight into investment management, administration and distribution costs. He argued that a proposal couldn’t be properly assessed when a piece was missing.

The final paper is due “soon”, according to McCarthy, though he could not put a date on its release. An attempt to introduce pension preservation and portability in 1980/81 triggered at least 30 strikes involving about 27 000 workers, according to reports at the time. Though draft legislation was tabled in 1982 it was shelved.

The idea was resurrected in 1984 with the advent of PW Botha’s tricameral parliament and a parliamentary select committee was set up to examine the issue in 1985. This attempt also came to nothing, largely because of the opposition of trade unions and a general realisation that the proposals were unworkable.

Retirement reform was put on a back burner until the start of the new millennium. Then, increasing pressure on government finances prompted it to look at ways to provide for people past working age.

In 2002, the government set up a committee of inquiry into comprehensive social protection and the Treasury published a discussion paper in November 2004 on retirement funds reform. This was followed by further discussion papers and the creation of an inter-ministerial committee (IMC) to look into the viability of a comprehensive system of social security, including the expansion of the social grants, in 2007.

In last year’s Budget, Finance Minister Pravin Gordhan announced the package of proposals and an overview appeared three months later. McCarthy said this was followed by a series of papers on different aspects of the reform.

More generous social pensions and the extension of unemployment insurance make the idea of pension preservation more practical. Moreover, the proposals are more flexible than those made 30 years ago.

The Treasury reforms would be introduced in the short to medium term and were designed to remedy shortcomings in the system, McCarthy said. The IMC measures for a comprehensive social security system are for the longer term.