OPINIONISTA: Government was right to reject the DA’s pension reform proposal

Parliament’s finance committee has rejected the proposed DA bill that would allow pension fund members to use 30% of their pension savings as a loan guarantee, to help alleviate the financial pressure they may be experiencing due to Covid-19.

No such feasibility study accompanied the amendment bill, nor had the DA issued a discussion paper to get the retirement industry’s thoughts on the matter. From that point alone, the proposal was always likely to fail. If a loan was nevertheless granted to a person who cannot afford the repayments, as the DA envisages, it is likely that the guarantee would soon be called by the lender. This then becomes a roundabout way to access pension benefits by way of an early withdrawal, leaving a retirement funding gap that would be further enlarged by the lump-sum tax on the early withdrawal.

Our regulators and politicians have long struggled with this dilemma of competing needs. The ideal would be a system that facilitates both: immediate relief in emergencies plus also better retirement outcomes down the line. The current system allows pension and provident fund members to withdraw their savings every time they leave their employer. Per the 10X, the percentage of fund members who do so remains stubbornly high at 60%. Other studies suggest the number is closer to 80%.

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