Finance Minister Nhlanhla Nene has called on South Africans to refrain from cashing in their provident fund savings when they resign or change jobs, adding that rumours that their retirement savings are under threat were “false.”
The Minister was responding to rumours that have been doing the rounds in the public service circles that government was planning to nationalise employee pension funds.
Briefing the National Assembly on Thursday, the Minister said nationalisation rumours were false, and that government’s plan to reform retirement savings was designed to ensure that members get to withdraw their retirement savings without fund managers, particularly trustees, subjecting them to exorbitant charges.
“Recent anecdotal evidence suggests employees are resigning from their jobs in order to cash in on the provident funds.”
“We are not sure at this stage how widespread this phenomenon is, but Cabinet discussed this problem at its meeting of 20 August 2014 and issued a statement to assure all members of retirement funds that their pension and provident funds are safe, and there is no need to resign from their jobs and cash in their pension and provident funds,” he said.
Minister Nene said the evidence that more and more workers were withdrawing their retirement savings was discussed by Cabinet at its 20 August meeting, and that the executive reiterated its call for members to preserve their savings in order to retire comfortably.
Recent data on household savings show that households were struggling to save due to their high levels of indebtedness and that under the current economic climate, the working class was resorting to withdrawing their retirement savings to pay debt.
The households’ savings rate stood at a worryingly low level of 1.7% of GDP in 2013, the Minister said.
He also said that household debt as a percentage of disposable income rose from about 50% in the early 2000s to above 80% during the global financial crisis.
“This ratio remains high at around 75 percent. Many of our people are overly-indebted and susceptible to income and price shocks,” the Minister said.
Others went as far as taking up more credit for consumption.
The Minister said the recently announced reform of the retirement industry was not aimed at denying workers from withdrawing their funds, as conveyed through rumours.
He said the reforms were aimed at reducing high charges by pension fund managers.
“Certain retirement products carry high charges, which are borne by members, and are difficult for members to understand, often deliberately so. Madame Speaker, we realise that it does not help much asking workers to save when their savings are going to be significantly reduced by service charges or costs, which are borne by the members,” he said.
The Minister also said that according to research, charges can reduce up to 40% of the return in retirement funds.
Opposition parties welcomed the Minister’s statement, with most of them saying they supported strong retirement funds and pension funds, and that the funds should be protected.