National Treasury has announced that they are looking at amendments to the way members are able to withdraw benefits from their retirement fund. This comes in response to growing member demands to be able to access their benefits in retirement funds, due to the Covid-19 pandemic, which has negatively impacted financial circumstances. This change requires amendments to both legislation and fund rules and will need administration systems to be changed. It has been reported that the earliest this change would be effective would be in 2022.
National Treasury has made the statement that Government has been working on a more structured “two-bucket system” that will allow for the restructuring of future contributions. One bucket is to be preserved until retirement, and the second bucket will allow for pre-retirement access during emergencies or extraordinary circumstances.
When NMG’s retirement fund administration database of stand-alone and umbrella fund members is analysed, the average replacement ratio across all the active retirement fund members is 35%. This means that the average active member could expect an income after retirement that is 35% of the salary that he / she was expected to be earning before retirement.
The traditional rule of thumb is that members need to have saved around 15 times their annual salary by the time they retire to receive a comfortable income in retirement. The average member in NMG’s retirement fund administration database only has one times their annual salary invested for their retirement in the current fund.
National Treasury have previously reported that an estimated 6% of South Africans can afford to retire comfortably at the current retirement age of 65. Numerous discussions in the industry at a global level have led to the belief that due to the pandemic and longer life expectancies, most people are unlikely to be able to afford to retire.
The gender gap is another concern. Women make up more than 51% of the population but many women do not have retirement plans which puts them at a disadvantage considering that on average, they live longer than men, and will need their retirement income for a longer retirement.
When Retirement Reform was raised in the early 2000’s, compulsory preservation was one of the main aims. The other key aspects relating to contributions, tax on contributions and compulsory annuitisation have been implemented, this is the one aspect that remains. When compulsory annuitisation became effective from 1 March 2021, this change was welcome by the industry as it is in the long-term best interest of members. It seems counter-productive to now be reviewing further legislation changes which aim to address short term needs whilst placing long term pressures on government and society.
SASSA reported in their 2019/2020 annual report that they have provided benefits to 18 million vulnerable individuals and households throughout the country, at a cost of R189 640 billion during the period from March 2019 to March 2020. The number of active social grants continues to grow steadily, increasing from 17.8 million at the end of March 2019 to 18.3 million at the end of March 2021, representing a growth of around 2.7%.
It is a concern that the changes that have been proposed do more harm than good for South Africans. As members of the financial services industry, we need to act in the long-term best interest of individuals and discourage unnecessary benefit withdrawals. It would certainly be a positive if the proposed change on benefit withdrawals from retirement funds could be balanced by making it compulsory for all employer groups, regardless of size, to make provision for their employees’ retirement funds.
NMG will be keeping abreast of developments in this regard. This change has wide reaching effects on the membership we serve.