Finance Minister Nhlanhla Nene has called on South Africans to refrain from cashing in their provident fund savings when they resign or change jobs, adding that rumours that their retirement savings are under threat were “false”.
Briefing the National Assembly, the Nene said nationalisation rumours were false, and that government’s plan to reform retirement savings was designed to ensure that members get to withdraw their retirement savings without fund managers, particularly trustees, subjecting them to exorbitant charges.
“Recent anecdotal evidence suggests employees are resigning from their jobs in order to cash in on the provident funds,” he said.
“We are not sure at this stage how widespread this phenomenon is, but Cabinet discussed this problem and issued a statement to assure all members of retirement funds that their pension and provident funds are safe, and there is no need to resign from their jobs and cash in their pension and provident funds,” he said.
Households keep struggling
Recent data on household savings show that households were struggling to save because of their high levels of indebtedness and that under the current economic climate, the working class was resorting to withdrawing their retirement savings to pay off debts.
“The households’ savings rate stood at a worryingly low level of 1.7% of GDP in 2013,” Nene said.
He also said that household debt as a percentage of disposable income rose from about 50% in the early 2000s to above 80% during the global financial crisis.
“This ratio remains high at around 75%. Many of our people are overly-indebted and susceptible to income and price shocks,” he said.
The Minister said the recently announced reform of the retirement industry was not aimed at denying workers from withdrawing their funds, as conveyed through rumours. He said the reforms were aimed at reducing high charges by pension fund managers.
“Certain retirement products carry high charges, which are borne by members, and are difficult for members to understand, often deliberately so. We realise that it does not help asking workers to save when their savings are going to be significantly reduced by service charges or costs,” he said.
Nene said that according to research, charges can reduce up to 40% of the return in retirement funds.
Opposition parties welcomed the Nene’s statement, with most of them saying they supported strong retirement and pension funds, and that the funds should be protected.