‘Plans for early access to retirement cash must improve savings culture’

Plans to allow financially distressed contributors early access to retirement savings must also focus on improving SA’s savings culture and retirement outcomes, according to Old Mutual, one of the largest players in SA’s retirement space.

Though it supported a proposal for the limited withdrawal of retirement savings to help households weather the ravages of Covid-19, this must come in conjunction with efforts to increase preservation and improve coverage, Old Mutual Corporate director of large enterprises Malusi Ndlovu said.

Moves to let embattled households access a portion of their retirement funds early have been under discussion for more than a year.

But the matter gathered impetus last week after the National Treasury said it was proposing a limited system of withdrawals, together with mandatory preservation and wider coverage, including for people like contract workers.

“We support the National Treasury’s approach of a package of reforms, addressing various aspects in one go — early access, preservation, increased coverage as it will alleviate the short-term financial pressure and increase long-term retirement outcomes,” Ndlovu said on Wednesday.

The proposal must also confront immediate challenges, notably the liquidity issues facing retirement funds, he said.

Should early access be granted, a large amount of money would be disinvested in a short period “potentially harming asset prices and causing members and other investors to realise poor value in the short term”, he said.

The plan must also look at practical implications, including clear access rules, such as who decided if a member qualified, and tax implications.

SA has a poor savings record, with only 6% of people able to retire with adequate savings, according to the Treasury.