Access for members, to their retirement savings:  The minister of finance announced the government’s intention to provide access for members of retirement funds to their savings in cases of financial hardship. Although the amount of money collectively governed by retirement funds seems high, members of these funds are not covered adequately in terms of ability to retire.  It takes a long time for an employee (40 years) to accumulate savings that will provide an income at retirement at a reasonable level relative to the last salary from employment at date of retirement. Research shows that the average member of a retirement fund only saves enough to replace 25-30% of that final retirement salary, mainly due to leakage when members change employers and gain access to their funds.  Providing further access to this nest egg prematurely, will not support the main purpose of retirement funds.

Warning:  Members should utilize the Acravest mobile APP, where each member can view how much of their expected salary at retirement they can expect to replace with income from their retirement capital at that point, if continuing with current strategy, before considering the early utilization of this critical asset.

Provident fund retirement benefits restrained:  The restrictions on retirement benefits introduced for provident funds (1 March 2021), deserve to be mentioned here.  These restrictions will reduce leakage of money from a highly tax incentivised system.  Incentives here, of course are funded by the tax payer.  The long term aim of the incentives is to reduce the burden that the aged put on the State’s balance sheet.  This change also opened the door for the consolidation of pension funds and provident funds, enhancing the opportunity to unlock benefits for members from the economies of scale that will flow from such a consolidation.

Financial Sector Restructure:  The restructuring of the whole of the financial sector in South Africa is happening in the background.  The so-called twin peaks model was introduced and are progressing well in terms of implementation.  The latest step forward is a new piece of legislation consolidating concepts and components that is already applied via multiple codes and pieces of legislation across the financial sector.  This piece of legislation is called the Conduct of Financial Institutions Bill (It will soon become an Act).  A second draft has been published for comment in September 2020.  The aim here is to have the whole of the financial sector subjected to one conduct standard.  The act specifically includes retirement funds.  From a very broad perspective, the act is very much about governance and treating customers fairly but it also includes matters such as transformation and standardizing licensing for providers.

National savings Strategy:  Lastly, the government wants to implement a national saving strategy, which has the good intention of ensuring every employed person becomes a member of a retirement fund.  The design features however includes that current members of retirement funds will also be obliged to join this strategy for a defined component of their salary.  Within this design, there are strong cross subsidisation features between members which could have the outcome that some of the burden to provide benefits to all, will be placed on the shoulders of a component of the membership in this strategy.