Overhaul of retirement reform loses momentum

rp_228969111111.jpgThe†Treasuryís delay in implementing retirement reform has been met with dismay by some industry players, who view the proposed changes as crucial to improving SAís low savings rate.

Payroll providers and pension-fund administrators have invested millions in new systems to carry out the changes, which were to have taken effect in March next year.

But the Treasury announced earlier this month the first phase of the reforms would be delayed until March 2016 or even March 2017.

Beatrie Gouws, associate director of international executive services at KPMG, said on Friday it was of concern that momentum in introducing the reforms could be lost.

“The industry has just got employers involved, and they are starting to run workshops for their employees to tell them what is happening with their money.

“Now because the foot is off the pedal, that is going to stop, and we lose all the benefit of employers taking an active interest,” she said.

The reforms were meant to encourage workers to preserve their retirement savings. This included giving provident fund members the same protection as pension fund members and capping the retirement saving incentive to prevent it from favouring the wealthy.

However, under pressure from the Congress of South African Trade Unions (Cosatu), the Treasury said it would delay the implementation of the reforms until there was more clarity on social security reform.

Cosatu had argued that thousands of its members in the public service had resigned to cash in their pensions. This was in response to rumours that pension funds would be nationalised or provident fund members would be prevented from withdrawing lump sums before retirement. The rumours were not true, as phase one of the retirement reform included no mention of pre-retirement withdrawals.

Simeka Consultants and Actuaries head of strategy, governance and compliance Kobus Hanekom said the delay “has been met with shock and disappointment by key players in the retirement industry”.

“The reforms are widely considered to be crucial in assisting funds to structure good retirement outcomes for their members,” he said.

The industry will find out in July next year whether and when the reforms will go ahead.

Ms Gouws said it would be better to implement retirement reform in phases, rather than doing it in one instalment after social security reforms have been introduced in their entirety. “I am more of proponent for a phased approach because you canít build things overnight and hope it works.”

She said it appeared a government decision whether to continue with phase one, or completely overhaul the reforms, would be discussed with the standing committee on finance while considering the 2015 Draft Taxation Laws Amendment Bill. The decision will be made by July 31 next year.

This article first appeared in BDLive.