Investing towards a sound retirement is not a priority for many South Africans. This phenomenon has prompted Government to look at new measures to get the people to save for retirement and preserve retirement benefits when leaving an employer’s pension or provident fund.
This is according to Niel Fourie, Public Policy Actuary at the Actuarial Society of South Africa.
“In partnership with our industry, National Treasury is working on several tough love measures that will force you to preserve your retirement benefits when leaving a pension or provident fund.
One of these will force your employer to pay your retirement benefit into a preservation fund when you resign or if you are dismissed,” said Fourie.
He added that currently you are given the option of taking your retirement benefit as a cash lump sum or to transfer the money into a preservation fund. According to National Treasury’s retirement reform proposals announced with the National Budget in February, this is set to change from 2015.
Retirement requirements for 2015
The proposal states that from a date still to be determined in 2015, all retirement funds will be required to transfer members’ balances into a preservation fund when members withdraw from the retirement fund before retirement. Payments resulting from divorces will also have to be paid into preservation funds rather than being paid in cash.
But not all National Treasury’s proposals are tough. One of them will give you access to your preservation fund once a year. In terms of current preservation fund regulations you can make only one withdrawal from your preservation fund before retirement irrespective of whether you make a full or partial withdrawal.
“While this new proposal may at first seem odd, the current system of allowing only one withdrawal has been encouraging people to take all their retirement savings in one go. By allowing one withdrawal a year, Government is hoping that consumers will preserve most of their savings and dip into them only in times of need,” said Fourie.
To make sure that consumers are not forced into expensive debt in times of financial emergencies, the National Treasury proposal recommends that unused withdrawals in any year may be carried forward to future years.
Don’t postpone saving for retirement
According to the 2012 Alexander Forbes Member Watch Survey, on average less than 6% of employees between the age of 20 and 25 preserve their retirement savings when changing jobs. Less than 10% of those in the 30 to 40 year age group tend to preserve their retirement benefits.
“These statistics paint a grim picture given that the later you start saving for your retirement the more you need to put away to make up for years of lost contributions. Therefore, every time you dip into your existing savings you increase the amount that you have to save in order to make up for the lost amount and the growth you would have received had this amount remained invested,” said Fourie.