Bridging the Retirement Fund Divide
INVESTING retirement funds into a new venture can provide the essential capital injection for establishing another chapter of a business career, but bridging the months between resignation and payout is a potential minefield.
It is in this gap that specialised bridging finance company Cash on Demand (COD) has launched the Retirement Fund Bridging product, effectively enabling departing retirement fund members to access capital in the critical months between becoming aware of the impending departure from a fund and receiving withdrawal or retirement benefits. Paid within 24 hours of approval, the product is an immediate access to cash that accrues a daily discounting fee of 0, 15%. Fees are charged for the actual number of days the capital is required and there are no additional hidden costs. COD CEO John Knipe says given the lack of hard security provided against the loan, this is a particularly competitive rate within the bridging finance industry. The loan is capped at 70% of the net pension or provident fund benefit and available to anyone departing a fund due to resignation, retrenchment, dismissal or retirement.
COD is the new name for GMI Investments, a company established in 1999 as the leading provider of bridging finance for the property industry in KwaZulu-Natal. Owned by Nedrec, property developer Peter Allen and Knipe, a former lawyer and retirement fund consultant, the company has national representation in Cape Town, Johannesburg, Port Elizabeth, Bloemfontein and Durban. As a recognised short-term financial institution, COD provides funding to parties requiring finance or advance payment in situations like property transactions, commission payments and asset-backed loans for clients whose income profile may not satisfy traditional banking parameters.
Knipe says the Retirement Fund Bridging initiative is credited with being a first for the South African retirement industry. The Pension Funds Act prohibits the pledge of benefits due to a member as security for debt and the product has been designed to work within the law while still offering short-term financing against retirement fund withdrawals. He says the move followed substantial research into the market need for finance at this level that has already stimulated substantial interest from members of the employee benefits and financial planning industries.
This is particularly relevant given that recent research into the workforce environment shows that current and future generations of employees are likely to have more than seven career changes during their working careers. Hence, the opportunities for people needing to access their retirement funding to use as the cornerstone for a new venture and thus be hindered by the time delay has escalated.
A Department of Trade and Industry report examining the costs and interest rates in the South African small loans sector commissioned several years ago concluded that the size of the formal industry was growing significantly. Statistics revealed that the average outstanding balance at any point touched R5,3bn for an estimated 2,5-million clients. The registered smaller cash lenders specialising in 30-day loans account for more than 400000 clients with a book that several years ago nibbled at R500m. Annualised, the estimated turnover from registered firms values the industry at R10bn accounting for 7, 6-million loans, reflecting the degree to which this sector offers substantial opportunities for growth.
Looking ahead, Knipe says the development of new products for a variety of markets will underpin future growth opportunities and cement the goal for market leadership within three years. "This is a growing market that has the potential for expansion in line with new developments under the evolving pension laws," he says.
