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Retirement Planning
Thursday, October 2, 2014 - 14:54
Rumour trouble

Spreading unsubstantiated rumours around the nationalisation of pension funds is reckless and harmful to workers who are said to be resigning in mass to obtain their pension money for fear that government’s proposed retirement reforms will see their savings expropriated.
Hannine Drake, Senior Associate at pan-African corporate law firm, Bowman Gilfillan, commented, “Workers must be properly informed on the implications of retirement reforms on their pension savings. Institutional stakeholders, including government, unions, employers and retirement funds, have key roles to play in explaining the facts in practical terms.”
Drake noted that the National Treasury’s reforms do not propose that government administers or nationalises retirement fund monies that are administered by private sector retirement funds. “The key premise of the reforms is that South Africans don’t save enough. We tend to take short-term financial decisions that are to our long-term detriment by, for example, withdrawing our retirement savings every time we resign instead of preserving it for retirement.
“The reforms are positive steps to protect members by improving fund governance, mandating trustee education and preserving pension savings for their intended purpose – retirement.”
According to the National Treasury, only 6% of South Africans will have enough savings when they retire. Drake added that proposed limitations on the withdrawal of resignation benefits meant to secure pensions for retirement still have to go through the legislative process before becoming law. The implementation date, if any, is uncertain and is unlikely to be within the next two years.
However, limited changes unrelated to resignation benefits take effect on 1st March 2015. An important change to note is that provident fund contributions made from 1st March 2015 by workers younger than 55 years will be treated the same as pension funds upon retirement. This means that workers may only receive up to one third of that portion of the pension that they accumulate after 1st March 2015 as a lump sum on retirement.
The remainder will be paid to the pensioner in annuitised payments over their lifetime. Pension funds already operate in this manner and the change will simply align provident funds with pension funds over a period of time.
Because the change does not apply retrospectively, provident fund savings accumulated until 1st March 2015 may still be withdrawn as a lump sum on retirement. This change does not affect workers 55 years or older on 1 March 2015 and does not affect resignation benefits.

Copyright © Insurance Times and Investments® Vol:27.10 1st October, 2014
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