The Government Employees Pension Fund (GEPF) has warned of a temporary liquidity crisis in the event of mass resignations involving civil servants wishing to cash in their pension funds.
The GEPF informed the Sunday time that if civil servants resign en masse, it could lead to cash constraints on any fund and have the side effect of a negative shock to asset prices on withdrawal dates.
“This is because pension funds base their investment strategy on a long-term view of pension obligations. Given GEPF’s volumes, a high number of resignations would pose a risk of short-term liquidity pressures,” he said.
This follows the publication by the National Treasury of a reform bill aimed at encouraging South Africans to have easily accessible savings while safeguarding funds for retirement.
Under the new Revenue Laws Amendment Bill, the Treasury is considering a “double pot” system in which members would be allowed to access up to one-third of their net pension fund contributions and accumulate investment returns on an annual basis to provide short-term financial relief.
The new legislation will also require that the remaining two-thirds be preserved over the long term, which will improve retirement outcomes for the majority of fund members compared to the status quo:
- 1/3 accessible savings pot;
- Retirement pot 2/3 subject to full retention until retirement.
The amendments allow South Africans to also save for non-retirement purposes (eg for emergencies) through their retirement funds, while preserving more of their savings for retirement.
“These changes are intended to encourage members to preserve their retirement savings by making them more flexible to deal with unexpected pressures that members face during their working lives.
“This allows workers to not resign from their jobs just to access their retirement funds and would have helped members during a crisis like the Covid-19 pandemic, when many employees faced reduced wages or no have not been paid at all during this period,” the National Treasury said.
Civil servants’ union Cosatu said the new pension bill is likely to trigger a rush to quit by civil servants hoping to gain immediate access to some of their retirement savings, it said. reported on Sunday Times.
Cosatu parliamentary co-ordinator Matthew Parks said the federation is responding to questions from officials who warn they will quit and cash in on the eve of the law’s enactment if they are not allowed access to their money.
“There will be a run on pension funds in March next year if this is not clarified; workers are bleeding. Civil servants will resign to cash in; we try to prevent this scenario. The Treasury forgets that it is workers’ money; it’s not their money,” Parks said.
Sanlam’s latest benchmark survey of the pension industry in South Africa showed that 56% of consumers said they disagreed with the scheme on offer.
Momentum Investments, which manages over R608 billion in assets, told Bloomberg that only 6% of South Africans can afford to retire comfortably, which they describe as receiving a pension of at least 75 % of their last salary.
South Africans are struggling to overcome short-term financial challenges at the expense of their long-term investments, said Paul Nixon, head of behavioral finance at Momentum Investments.
An unpredictable turbulent economic landscape amid rising costs of living and high levels of unemployment has altered retirement investment behavior, he said. “There has certainly been no shortage of uncertainty over the past two years, and unfortunately many investors with life annuity products have suffered losses.”
Interested parties have until August 29 to submit comments and questions to the National Treasury on the proposals.
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