Pension, Provident Funds

N ATIONAL TREASURY’S move to further regulate the preservation and portability of retirement savings in South Africa should be welcomed by the retirement industry as a move to encourage a greater level of savings among consumers; however, it is also important that the industry plays a central role in ensuring the process works optimally.

According to Willem Loots, head of umbrella fund solutions at Liberty Corporate, South Africa has a poor history of preservation of retirement savings, which is partly due to a lack of understanding of the benefits of retirement savings and the product options available.

“Retirement fund solutions are often perceived by consumers, rightly in some cases, to be complex products that are difficult to understand. As a result, many consumers choose not to take the time to determine which solution is right for them.”

Loots says that compulsory preservation is likely to be implemented in some form as part of Government’s commitment to improving levels of saving among consumers.

“One of the big advantages of implementing an automatic preservation solution is that it is one of the quick wins of Government’s overall retirement reform plan. Currently, the system has incentivised people to save as opposed to compelling them to do so. This has clearly led to suboptimal levels of retirement provision, and a stronger mechanism therefore needs to be considered,” says Loots.

The reform of savings preservation should allow for limited instances where people may access their retirement savings in certain life events, particularly unemployment. “It only makes sense for people to defer consumption, when there is actual consumption to defer,” says Loots.

He says contributions by most retirement fund