Can retirement reform be successful without compulsory preservation?
09 February 2016
Posted by: Author: Ingé Lamprecht
Author: Ingé Lamprecht (Moneyweb)
Protecting pensioners may require solving SA’s unemployment problem.
The successful implementation of the retirement reform process may hinge on solving South Africa’s unemployment problem.
From March 1 this year, provident fund members below the age of 55 will no longer receive their pension benefits as a cash lump sum at retirement, but will be compelled to annuitise two-thirds of the amount with respect to new contributions (made from March 1 onwards) and where these savings exceed R247 500. This new requirement, which is already applicable to pension funds and retirement annuities, is an effort to harmonise the tax treatment of retirement vehicles and part of a broader long-term drive by National Treasury to ensure more people can retire comfortably and don’t become a burden on the state. The move will likely see pension and provident funds merge over time and will lead to a significant reduction in costs.
Trade federation Cosatu has been vocal in its criticism of the new regulations, arguing that it is not in the best interest of its members and that more clarity on social security reform is needed before further changes can be introduced.
While union members are not the only individuals that will be impacted by these changes, industry insiders estimate that the majority of provident fund members are union members.
Alta Marais, head of pensions research and policy at the Financial Services Board, says there are roughly 5.8 million provident fund, 4.2 million pension fund and 4.1 million retirement annuity members in South Africa. Some members belong to more than one of these vehicles.
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This article first appeared on moneyweb.co.za.