SALGA backs pension fund reforms
The South African Local Government Association (SALGA) in KwaZulu-Natal has noted, with dismay, the delays in pension fund reforms that were promised by the national treasury at the beginning of the Covid-19 pandemic.
KZN SALGA chairperson, Thami Ntuli, said the National Treasury released the draft bill for public comment on 29 July 2022, the result of an intensive process of consultations.
“The unfortunate outcome of these processes has been a delay in the implementation of the pension fund ‘two-pot’ system for pension funds.
"Treasury proposes a 'two-pot' system to provide for: a retirement pot of which twothirds of future contributions must be preserved until retirement; and an accessible pot of which one-third of future contributions can be accessed because of financial hardship without first having to resign from existing employment.
“Treasury also proposes that the two-pot system should apply to defined benefit funds and retirement annuity funds,” he said.
Ntuli said as the association, they believe the implementation of this system would help Small, Micro, and Medium Enterprises (SMMEs) sector as well as home-based businesses.
“SALGA along with many economists believe small business development is the solution to South Africa’s unemployment problem. With floods and Covid-19 having had a devastating impact on small businesses, the government needs to act quickly.
“This month, the Reserve Bank again increased interest rates, by 75 basis points. The repo rate is now 6.25% and the prime lending rate is 9.75%.
"Surely SMME recovery cannot be funded by debt when the cost of loans is increasing. Access to a portion of one’s own money is surely the better option,” he said.
He added that as long as SMMEs cannot get capital injections from their owners, the longer they will struggle to replenish stock, take advantage of economies of scale, and thus stay afloat.
“When businesses fail, they cannot keep up with their municipal services obligations. SALGA, as the employer body for municipalities, is supportive of removing the tax deduction in respect of contributions to the access pot and making the withdrawal tax-free.
"This would create a taxfree savings account within a retirement fund. Moreover, the system should not only apply to new contributions.
"Existing funds, accumulated before the implementation date, should be subjected to the two-pot systems,” he said.