Cosatu ready to battle over pensions

• Union federation wants immediate relief for workers

A battle is in the offing between Cosatu and the retirement industry over worker access to retirement savings. It rejects as inadequate the limited access provided in the draft legislation on the two-pot system of retirement provision.

A battle is in the offing between Cosatu and the retirement industry over worker access to retirement savings.

The trade union federation rejects as inadequate the limited access provided in the draft legislation published by the National Treasury last week on the two-pot system of retirement provision.

In terms of the draft legislation, the amount accumulated before the coming into effect of the legislation, envisaged to be in March next year, will be regarded as “vested” and will not be accessible for immediate withdrawal except on resignation. Only a third of retirement savings accumulated in the savings pot after the effective date will be accessible. So, it will take time for the one-third savings pot to build up into a sizeable amount.

The retirement fund reforms are contained in the draft Revenue Laws Amendment Bill, released for public comment until August 29. After that, the Treasury will consult stakeholders.

A prime aim of the proposals is to ensure preservation of retirement funds in the context of a low savings rate in SA and one in which many depend on a meagre state pension in their later years. This would be secured by a retirement pot consisting of two-thirds of retirement savings accessible only on retirement.

To stop workers resigning from jobs to access their retirement savings to meet pressing needs — now happening on a large scale — the remaining onethird savings pot will be fully accessible for a single annual withdrawal of no less than R2,000.

FINANCIAL DISTRESS

Cosatu says workers in financial distress need immediate access to the one-third of savings accumulated up until the new system comes into effect. A union delegation hopes to meet Treasury officials this week to voice concern. Its demand for financially struggling workers to be allowed to access limited portions of their pension funds when needed dates back to 2020 when Covid-19 plunged many into financial difficulty.

“The bill needs to provide for immediate relief to embattled workers when it comes into effect in March 2023 and not simply apply to savings going forward. Workers are in debt now and need relief now, not in the distant future. If this is not addressed, many workers will simply resign and cash out their entire pension funds as happened previously when government rushed compulsory annuitisation and ignored workers’ real struggles,” said Cosatu parliamentary co-ordinator Matthew Parks.

But the retirement industry warned previously that a rush of claims for immediate access to a third of funds could pose liquidity problems for retirement funds and be an administrative nightmare.

It was noted in a Treasury discussion document on retirement reform published in December last year that about R78bn a year is withdrawn from the retirement system before retirement, according to Sars data. It was said the potential amount that could be withdrawn from the retirement sector if immediate access of 10% (up to R25,000) of funds was allowed was R175bn out of R2-trillion in aggregate assets in privately administered funds.

Treasury director for retirement savings Alvinah Thela said on Wednesday that retirementfunds liquidity was one of the issues the Treasury considered in not allowing immediate access. The Treasury also believed the financial position of workers is not as dire now as it was at the height of the Covid-19 pandemic, so there would be less need for relief.

“It doesn’t look like the situation is critical any more, but we will be engaging with Cosatu on this,” she said.

Another reason for the decision was that as the level of savings per worker is low, allowing access to a third of existing savings would wipe out a large chunk of their accumulated retirement funds, leaving them with too little for retirement. Thela said that according to Association for Savings and Investment SA (Asisa) figures, 61% of fund members had an average retirement fund value of R37,000 or less in July 2020.

From March 1 2023, a third of contributions will be deposited into the savings pot and twothirds into the retirement pot. On resignation, the vested pot could be transferred to the retirement pot or be withdrawn subject to tax. The vested pot will remain eligible for a one-off withdrawal of up to the full value at any point before retirement. This means that “individuals who resign from their employment will be able to access the value of their pension fund or provident fund as at March 1 2023 plus any growth on that amount”, says the memorandum to the bill.

Thela said the reason for allowing full access to the vested pot is that the legislation could not be made retrospective; existing rules must keep applying to savings made until promulgation.

Another reason is to avert a rush of resignations before the new system comes into force as workers hurriedly seek access to their retirement savings.

She said that as the proposed amendments are to the Income Tax Act and not the Pension Funds Act, they would apply to both private- and public-sector workers.

IF THIS IS NOT ADDRESSED, MANY WORKERS WILL SIMPLY RESIGN AND CASH OUT THEIR ENTIRE PENSION FUNDS