Why Cosatu will fight

Fed­er­a­tion crit­i­cises new tax amend­ments that will, over time, in ef­fect turn prov­i­dent funds into pen­sion funds

CityPress - - Busi­ness - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­press.co.za

Cosatu this week ar­guably launched its most strongly worded at­tack on a gov­ern­ment pol­icy since it helped put Ja­cob Zuma in the pres­i­dency in 2009. Pres­i­dent Zuma signed tax amend­ments into law over the fes­tive sea­son that will, over time, in ef­fect turn prov­i­dent funds into pen­sion funds, which will force many work­ers to buy an­nu­ity prod­ucts in­stead of re­ceiv­ing lump sums on re­tire­ment.

Zuma is “na­tion­al­is­ing” work­ers’ sav­ings, an act of “out­ra­geous provo­ca­tion” that will have “dire and last­ing con­se­quences on the re­la­tion­ship be­tween gov­ern­ment and the work­ers”, reads a long Cosatu press re­lease this week af­ter the an­nounce­ment.

Cosatu’s po­si­tion has some solid bases, even ac­cord­ing to ex­perts in the re­tire­ment fund busi­ness, which was this week gen­er­ally ap­plaud­ing the amend­ments.

The prob­lem comes in with the piti­ful an­nu­ities work­ers near the new “de min­imus” thresh­old would be ex­pected to buy (see box).

Some­one just reach­ing the thresh­old of R247 000 will be obliged to put R165 000 into an an­nu­ity.

That would prob­a­bly lead to a monthly pen­sion of be­tween R1 000 and R2 000, at best.

The an­nu­ity mar­ket did not nec­es­sar­ily pro­vide good value, es­pe­cially not for low earn­ers, who would in fu­ture be forced to buy an­nu­ities, said Michael Prinsloo, head of em­ployee ben­e­fit con­sult­ing at Alexan­der Forbes.

“There is a solid link be­tween mor­tal­ity and poverty. Those with the most value live longer,” he said.

This meant that the lower-in­come earn­ers who started buy­ing an­nu­ities could end up sub­si­dis­ing the rich be­cause they were less likely to live long enough to claim all their funds, he told City Press. This echoes Cosatu’s ar­gu­ment. “We don’t have life ex­pectancy of 80 or 90 years, so we will only ac­cess part of our sav­ings in the end,” said Cosatu’s na­tional spokesper­son, Sizwe Pamla.

An­other ma­jor prob­lem is the in­ter­ac­tion be­tween the new re­quire­ment to buy an­nu­ities and the state’s old age grant sys­tem.

Peo­ple with sav­ings near the R247 000 thresh­old will be get­ting out an­nu­ity pen­sions com­pa­ra­ble to the state pen­sion.

But at the same time, this might dis­qual­ify them from the state pen­sion in terms of the means test.

“Some­one now get­ting R2 000 a month could ar­gue that if they had saved noth­ing, they’d still have R1 500 a month, so there is no in­cen­tive,” said Prinsloo.

Ac­cord­ing to him, Alexan­der Forbes’ view was that the new re­form had to go hand in hand with a scrap­ping of the means test for state grants – a mas­sive over­haul of the so­cial se­cu­rity sys­tem.

This is part of the “com­pre­hen­sive” re­form that Cosatu said should have oc­curred at once in­stead of one con­tro­ver­sial el­e­ment now get­ting en­acted by it­self.

Pamla ad­mit­ted that the state­ment this week could be seen as a “dis­pro­por­tion­ate re­sponse”.

This is all the more so be­cause most work­ers will at first be com­pletely un­af­fected (see box).

The re­forms that had just been an­nounced might very well not ac­tu­ally prac­ti­cally af­fect the ma­jor­ity of Cosatu’s mem­bers, but that was miss­ing the point, ar­gued Pamla.

One the one hand, Cosatu in­tends to con­tinue re­cruit­ing young work­ers, so the re­form will hit its mem­bers fur­ther down the line.

More im­por­tantly, the new an­nu­ity rule would al­most cer­tainly be the first of many new laws, said Pamla.

“We say it has to be com­pre­hen­sive, not a piece­meal ap­proach.”

In the back­ground is the threat of the log­i­cal next step to en­cour­age pri­vate re­tire­ment sav­ings that Cosatu has been fight­ing since lit­er­ally be­fore its own birth: com­pul­sory preser­va­tion.

One of its pre­de­ces­sor Fosatu’s first ma­jor pol­icy bat­tles was against a 1981 bill to en­force com­pul­sory preser­va­tion of work­ers’ re­tire­ment funds when they changed jobs.

That bill was met with mass mo­bil­i­sa­tions and 30 strikes – and was ul­ti­mately with­drawn by the apartheid gov­ern­ment.

The amend­ments rep­re­sented a pa­tro­n­is­ing “colo­nial at­ti­tude” that the state must in­ter­vene to “save you from your­self”, said Pamla.

“It is ar­ro­gant to say work­ers waste their lump sums. Peo­ple use it to buy houses, pay debts, school fees, start busi­nesses ... You can’t do that with monthly in­stal­ments.

“They don’t want to do the real hard work of ad­dress­ing apartheid wages. In­stead, they go for the soft spot. It is only a cer­tain class that gets af­fected. Think about what hap­pens when a law hurts big busi­ness. They back down.”

Cosatu in­tended to ap­ply for a sec­tion 77 protest from Ned­lac, and Pamla said the po­lit­i­cal course of ac­tion re­ally lies in the hands of work­ers.

The ex­tent to which the amend­ments ac­tu­ally change any­thing by them­selves is up for de­bate.

Ac­cord­ing to Prinsloo, last year, about 3 000 mem­bers of Alexan­der Forbes’ prov­i­dent funds re­tired. On av­er­age, they had R1 mil­lion in sav­ings, but the me­dian was only R435 000, he told City Press.

That means there would be sev­eral mem­bers with sav­ings near the thresh­old.

“You find that about two-thirds of mem­bers go with lump sums and a third buy an­nu­ities,” he said.

The ones go­ing for lump sums tend to be the ones with low sav­ings.

“Ab­so­lutely noth­ing” in the amend­ments pro­hib­ited work­ers from still cash­ing out their prov­i­dent funds be­fore re­tire­ment, Prinsloo told City Press.

This prac­tice would only be blocked by the com­pul­sory preser­va­tion rules Cosatu has fought since the 1980s.

Trea­sury also said about half of an es­ti­mated 2.5 mil­lion prov­i­dent fund mem­bers would be un­af­fected be­cause they re­tired with less than R247 000 saved.

In fact, 51% had less than R75 000 saved, ac­cord­ing to an anony­mous sam­ple from an un­named fund it used last year.

Ac­cord­ing to Michelle Ac­ton, prin­ci­pal con­sul­tant at Old Mu­tual Cor­po­rate Con­sul­tants, “ap­prox­i­mately twothirds” of mem­bers re­tir­ing from the Old Mu­tual um­brella prov­i­dent fund left with sav­ings be­low the R247 000 level.

“The prob­lem is that you need to set a thresh­old some­where,” said Richard Carter, head of prod­uct de­vel­op­ment at Al­lan Gray, which man­ages the funds of many South African prov­i­dent funds.

Trea­sury had ap­par­ently rea­soned that it would be fine be­cause few work­ers would be af­fected any time soon.

Carter sug­gested that the amend­ments might not turn out the way Trea­sury hoped.

“I sus­pect funds may get di­verted away from prov­i­dent funds in the first place,” he said.

Unions could push for re­duced con­tri­bu­tions and in­stead start new in­vest­ment ve­hi­cles, he told City Press.

“There’s not much of a tax ben­e­fit in it, ex­cept for high mar­ginal tax rate tax­pay­ers. Some small amount will go to the an­nu­ity mar­ket, but I’m not sure it will be a big deal for them.” Job losses in the min­ing sec­tor (June 2015 - Septem­ber 2015)

June 2015

Septem­ber 2015

PHOTO: CHRISTO­PHER JUE / GETTY IM­AGES

RED-HOT WHEELS A Mazda RX-Vi­sion con­cept ve­hi­cle on dis­play at the 2016 Tokyo Auto Sa­lon car show this week in Chiba, Ja­pan

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