By Ashleigh Brown, journalist, Justmoney
Rules to limit access to pension funds when people job hop is set to come into effect next year. The government wants to introduce these rules to ensure that people preserve their pension pots instead of cashing them in, but rumours have spread that the government plans to nationalise pensions and this has scared some people to resign from jobs just to access their pension money.
The panic has forced finance minister, Nhlanhla Nene to send out reassurances to people that the government would not be nationalising pension funds.
"Recent anecdotal evidence suggests some employees are resigning from their jobs to cash in their pension and provident funds," Nene told MP’s in the National Assembly last week. Nene went on to stress that whatever money employees have placed in pensions funds would always be theirs.
Nene’s reassurances come after the Finance Ministry highlighted that the government believed it was too easy to withdraw retirement savings on changing jobs or resigning. The first set of reforms aimed at preserving retirement savings would be phased in from 1 March 2015, according to reports.
The rumours
“We are not sure at this stage how widespread this phenomenon is, but Cabinet discussed this problem at its meeting of 20 August 2014 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,” said Nene.
He went onto to say that even though government encourages people to preserve their retirement funds until they retire, there are no new laws enforcing that.
“Government respects the fact that these retirement funds belong to their members. Government has never had, and does not have, any intention to nationalise these funds. Rumours to this effect are a blatant lie,” said Nene.
Gavin Came, director of the Financial Intermediaries Association of Southern Africa (FIA) and a financial consultant at Sasfin, agreed that government wanting to nationalise pension was just a rumour: “Your existing rights will not be affected, so you will always be able to get your money out. There is no intention to nationalise pension. That is just a rumour.”
Furthermore, a statement released by the KwaZulu-Natal government said that: “All provident fund members will still be able to take all their retirement savings that would have been accumulated as at March 1 2015 as a cash lump sum whenever they go into retirement.”
When Nene was questioned whether the current retirement system was working, he said: “It is working and it is not broken, but does have cracks which need urgent fixing. The challenge is that even if South Africans save, mainly through their retirement funds, they are very quick to withdraw and spend their retirement savings when they change jobs.”
Risky business
With the current unemployment rate it would be a risk for employees to resign from their jobs, in order to cash out their pensions, as there is no guarantee that they would get their jobs back.
“There can be nothing as risky as people resigning from their jobs to cash in their retirement funds and end up being unemployed and losing their security of an income. Such risks are not worth taking, under any circumstances. Let alone to resign from their jobs when the reasons informing such a decision are false,” said Nene.
Nene went onto to say that another reason as to why people might be resigning from their jobs in order to cash out their pension funds is due to the high level of indebtedness in the country.
Furthermore, he also highlighted the low percentage of South African households which save. The saving rate was at 1.7% of the GDP in 2013. “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,” said Nene.
Came said that people retiring from their jobs, and then reapplying the next day had been happening for a long time now, and that it was often a tactic used by those who are heavily indebted.
“This is not a brand new thing. This has been happening for ages, and this [the rumour of nationalisation] was just another excuse to do that. People are not actually being stupid. If they are heavily indebted they cash out their pension to pay off their debt. However, then later they get back into debt again, and eventually there is no pension left for people when they do retire,” said Came.
Came emphasised how important it was that people do save towards retirement.
Tips
If you need help with either debt management, or retirement planning, then Justmoney has some useful reading material:
• If you need help with debt management, click here.
• For a guide on debt consolidation, click here.
• For help with retirement planning, click here.