No need for South Africans to fear retirement fund reforms

Retirement fund members’ fears about Government’s proposed retirement reforms need to be allayed.

That is the view of Michelle du Toit, principal consultant at Old Mutual Corporate, who says that the rights of retirement fund members are completely protected, and the rumours currently circulating about members’ savings being locked up, taken or used elsewhere, are simply not true.

Du Toit explains that the proposed retirement reforms are aimed at finding better and more cost-effective ways of assisting members to save sufficiently for their retirement. Saving for retirement has been severely neglected in South Africa. The 2014 Old Mutual Savings and Investment Monitor found that around a third of South Africa’s working metro Baby Boomers (born between 1946 and 1964) have no formal provision for their retirement and face the prospect of hardship.

“Ultimately, National Treasury is trying to add an advisory component to ensure that members who want to withdraw their funds will first seek advice to fully understand the consequences of withdrawing the funds. The reforms are nothing to be alarmed about: they are designed to encourage members to preserve their retirement funds in an investment vehicle for retirement, when the funds will be needed most.”

One of the proposed amendments allows for a third of the money contributed to a retirement fund to be drawn as a lump sum at retirement age. The remaining two thirds will be preserved and used to provide members with a monthly income during retirement.

“It is important to note that this only applies to funds added to a member’s provident fund after 1 March 2015. Any money contributed to the fund before this date will be paid out according to the previous regulations. Also, the amendments will not apply to members who hold less than R150 000 in their fund at retirement; these members will be able to withdraw the entire lump sum at retirement. Resignation benefits, which include members having access to their savings in the form of a lump sum, will also remain unchanged after the introduction of the new reform.”

Du Toit adds that the proposed amendments will benefit members through greater tax reductions and take-home pay. “From 1 March 2015, members will be able to contribute 27.5% of their total remuneration to any retirement vehicle, an increase from current levels, which can make a vast difference to retirement savings, as well as take-home pay.”

In light of the recent panic, Du Toit stresses that members need to take ownership of their retirement benefits. “They need to ask the right people the right questions. Urge them to obtain information from a valid, trustworthy source, such as a fund trustee or financial adviser.”