GEPF says no to using pensions as security for loans
The Government Employees Pension Fund (GEPF) has informed its more than 1-million members in the public service that they cannot access their pension funds while they are still working. The fund said in a notice to members that it was responding to the many queries it had received after the release of a private members’ bill by DA MP Dion George that proposes employees be allowed to use their pension funds as collateral for loans.
The Government Employees Pension Fund (GEPF) has informed its more than 1-million members in the public service that they cannot access their pension funds while they are still working.
The fund said in a notice to members that it was responding to the many queries it had received after the release of a private members’ bill by DA MP Dion George that proposes employees be allowed to use their pension funds as collateral for loans.
The fact the GEPF had to respond to numerous queries indicates the interest generated by the proposal.
George motivated his bill on the grounds that the Covid-19 pandemic has driven many people into poverty and destitution while they have an asset accumulated in their pension fund that they could use to ameliorate their situation.
Unlike some private sector pension funds, the GEPF also does not allow pensions to be used as security for a mortgage bond.
“It is important when reading about retirement proposals in the media that public servants who are GEPF members differentiate between changes made to funds in the private sector versus what is applicable to GEPF members as per the
Government Employees Pension Law,” the GEPF notice to members said.
“Unfortunately some financial advisers are also not aware of this difference and may provide incorrect information.
“As it now stands, the GEPF does not allow any withdrawal from the pension fund while employed. It does not allow cash advances or loans from the fund as the fund is not a regulated financial service provider, which means it would be against the law to allow loans from the GEPF.
“It is also important to note that the GEPF is a defined benefit fund, which means that the GEPF and the employer, the state, guarantee the members’ benefits in retirement. These benefits are not based on the value of the fund at retirement but on years of pensionable service, actuarial interest factors and final salary calculations.”
The GEPF said it and the department of public service & administration were concerned that people did not understand the long-term consequences of depleting retirement funding.
It cited as an example members who have experienced a reduction in pension benefits due to divorce settlements often ending up being underfunded at retirement.
George’s proposed bill would impose no restriction on the purpose of the loan but set its limit at 75% of the value of the pension fund. Pension fund trustees would have the right to decide if they want to offer loans against the loan limits, and financial institutions would decide if they want to offer a loan.
The Treasury does not approve of the bill as it is concerned about the level of overindebtedness in the country. It is also not happy about the existing dispensation of employees being able to withdraw their pensions on resignation.
Workers frequently resign from their jobs to access their pensions, and this often means they are left destitute and dependent on the state on retirement.
“The biggest problem is that South Africans don’t save enough and are highly indebted,” Treasury director-general Ismail Momoniat said during a recent meeting of parliament’s finance committee at which George presented his bill.
“While we think that there is a role for some limited withdrawals, the bigger issue is to get preservation so people don’t cash out each time they change their jobs, to close that loophole,” Momoniat said, adding there has been a lot of abuse on the borrowing side for those funds that allow it.
The GEPF said in its notice to members that the proposal does not have any bearing on its members as it is not a private sector pension fund governed by the Pensions Fund Act but has its own enabling legislation, the Government Employees Pension Law.