The pensions dilemma is still with us
Labour federation Cosatu is wrong on the changes to the rules governing provident funds. At the federation’s insistence, government this week postponed the implementation of changes that attempted to use tax laws to get retirees to save for longer by making it compulsory to buy an annuity with your provident fund.
Provident fund holders would have been made to suffer the stick of punitive tax rates to pay members out. The carrot was meant to be the tax break for workers buying annuities.
The purpose of the law is good: to ensure workers save for the extended lives we now live. But Cosatu says workers should be allowed to access their money without facing punitive tax rates. In addition, the structure of the new system would have meant that workers would, in many cases, not have been able to get a state pension.
Cosatu was not swayed by the carrot of a bulkier salary packet through the tax breaks. Government stepped back from the battlefield. The fight has been postponed, but not the dilemma: millions of South Africans still enter their golden years without a decent pension. And workers are resigning to cash out pensions because life is getting too expensive.