Plan would ease pension restrictions
The DA has drafted a bill that proposes pension fund members be allowed to use private savings as collateral. By Ruan Jooste
At present, in terms of the Pension Funds Act, retirement fund members can use their pensions as surety only to obtain a home loan. But DA finance spokesperson Dion George has drafted a proposed Pension Funds Amendment Bill that broadens this to all types of loans, for up to 75% of the fund balance.
“The idea behind it is not a silver bullet to solve everyone’s financial woes,” says George. “It is a simple intervention for people suffering under current economic conditions, and/or who have lost their income or businesses due to Covid-19 lockdown restrictions.”
George makes it clear that the bill does not propose any form of withdrawal, as people should not dilute their retirement savings, but he says we “are facing the biggest crisis in over a century” and “it is time for us to start thinking creatively about the matter”.
He says “responsible savers” should have power of attorney over their own funds, and those who invested into their business should have the opportunity to get back on their feet.
“It should be the member’s choice if he/ she wants to use his/her pension as surety for a loan,” he says, calling this the opposite of prescribed assets.
Rosemary Hunter, pension funds lawyer at Fasken, calls it a “well-considered” submission, and says the National Treasury has paid little mind to the proposal that retirement funds be allowed to grant special relief benefits.
Ismail Momoniat, head of tax and financial sector policy at the National Treasury, did not respond to Business Maverick’s request for an update on the matter.
Andrew Crawford, director at Seshego Benefit Consulting, agrees that private savers should have access to money they have put aside.
Both Cosatu and the Banking Association of South Africa, which represents licensed banks, have come out in support of the proposed bill.
The Institute of Retirement Funds Africa has not, but George says it did not suggest alternatives to deal with the crisis during the public comment period that closed last week.
Another opponent of the notion is Erich Kröhnert of Ultreia Consulting Services. In a letter to the Speaker of the National Assembly, the committee chair and secretariat to the standing committee on finance, he states that this “appears to be nothing other than a scheme for the industry to generate new revenue streams that will benefit lenders, retirement administrators and other providers in the retirement value chain — all at the expense of over-indebted workers”.
He says the interest rate charge is not the only charge levied against pension-backed loans. The Pension Funds Act Notice 2 of 2017 prescribes the interest rate institutions may levy for pension-backed housing loans. “Unfortunately, it does not prescribe the transactional fees and costs that institutions may levy for these loans,” Kröhnert says.
He also mentions flaws in the proposal. “It is at odds with the National Credit Act, the ‘ability to repay’ criterion is not only the most important determinant in whether loans are granted, but has a direct impact on the continued ability of borrowers to service the debt. The application of this criterion alone would deny many members the relief sought.”
In a related development, the Mercer CFA Institute Global Pension Index survey released this week, which compares pension plans across the world, gives South Africa an overall index value of 53.2, better than such countries as Austria, Italy, Indonesia and South Korea.