By Lelane Bezuidenhout, CFP®, CEO of FPI

FPI Response to National Treasury’s Media Statement: Process and Approach to Preservation and access to Retirement Savings

National Treasury has mentioned the possibility of amending the law to allow limited pre-retirement withdrawals. If it pushes ahead with these plans, FPI advises doing so with the utmost of caution.  

Discussions around access to retirement savings have been a contentious issue for some time. But they have really escalated since the start of the global coronavirus pandemic – not just in South Africa, but across the globe. 

FPI’s Advocacy Committee met on Friday 13 August to discuss National Treasury’s media statement on their plans to possibly allow “limited pre-retirement withdrawals from retirement funds” – conceivably as early as next year. Read the full statement here. 

A delicate balance 

Whilst we understand the predicament that some households find themselves in because of COVID, we need to carefully consider allowing access to retirement funds for any purpose other than what Retirement Funds were designed for…Namely, retirement.   

Currently, members or their beneficiaries can access funds at retirement, disability, retrenchment, resignation (depending on fund rules) and/or death (bearing in mind that section 37C of the Pension Funds Act always applies). Members can also access their funds in terms of section 19 of the Pension Funds Act if a housing loan is required (a “pension-backed bank loan”).  

Possible ramifications 

FPI believes that to allow any other access may lead to a member and his/her household being worse off in the long run. In time, this is also likely to add a massive burden on the state to provide more and more state pensions. 

Allowing early access to retirement funds is likely to mean that retirement goals will not be reached, and that members of retirement funds will end up paying tax that they already can ill afford. There is also the possibility that an IT88 (garnishee order) may be issued by SARS for arrear taxes and that administrators of funds will be obliged to use retirement funds to pay SARS. 

Should these plans materialize, fund rules must be amended, amongst other things, to make it extremely clear that members of a fund must be given access to professional financial advice. Accessing your retirement fund before retirement must always be carefully considered.   

There is furthermore, via the whole Retirement Reform process, a serious need to critically look at product design in terms of the TCF framework. We also recommend a review of the solvency levels of funds and an assessment of each fund’s ability to cope with the flood of withdrawal requests which may eventuate. SARS’ capabilities should also be carefully examined, as a tax directive is needed for any type of withdrawal or retirement request in terms of the current tax tables and Income Tax Act. Is there capacity inside SARS to handle all the tax directive requests?  

The importance of financial planning 

There has never been a greater need for professional financial advice. FPI will continue to engage with relevant parties on the matter and keep members abreast of our discussions as we go along.  

This development highlights, yet again, that we need to live our today – but should never forget to plan for our tomorrow…