Absa supports government plans to preserve retirement money

One of the government's main concerns is that even South Africans who are members of retirement funds, do not save enough for their retirement. This is because many members take their retirement savings in cash before they retire (e.g. when people change jobs). The National Treasury has released four discussion documents last month to strengthen retirement savings and will release one more document to expand on the issues of costs.

Interest rate cuts eroding retirement savings

Economic conditions for South African pensioners are becoming more and more challenging with interest rate cuts eroding retirement savings. Pensioners are also battling to make ends meet due to soaring food and transport costs. Given that October was Pensioners Month, it is only fitting that we support the government's plans to have a look at retirement savings and how that could ultimately benefit those who want to retire comfortably.

One of the government's proposals with regards to preservation of retirement money is a "default preservation option" to which the withdrawing member's pension balance must automatically be "transferred" when a member resigns. Members who opt to withdraw their pension benefits in cash must be required to seek advice.

Absa supports the default preservation option, but due consideration should be given to the future communication with the members and the introduction of a de minimus rule. We also support the proposal that members must first obtain advice when electing to take their benefit in cash. Special consideration should be given to an appropriate cost model for the administration of these members and the remuneration of financial advisors in this regard.

Hardship exceptions

Absa also supports the government's proposal to restrict a member's access to retirement benefits in the event of withdrawal to one-third of benefit with special allowance for real hardship cases. However, the allowance of hardship exceptions will be very difficult to manage and may prove to be costly for the member.

The government has also focussed on the role of trustees in fund governance and has acknowledged that many trustees may lack the competence and skills to make investments and management decisions with the best interest of members. Another problem is conflicts of interest in the way that trustees discharge their duties to members.

It is a good proposal by the government to standardise and make trustee training compulsory. However, special consideration should be taken in respect of the possible increased costs associated with trustee training and professionalising the role of the principal officer.