Edition: Sep - Nov 2014
P-Day for pensions preservation should not become Postponement Day. There are unfortunate signs that it might. Minister Nene must take a stand.
Give South Africans a chance to politicise anything, and there’s a numbing predictability that they will. Now it’s the turn of mandatory pensions preservation, a national necessity that can be cartwheeled by misinformation and opportunism into yet another round of struggle.
Two things are evident. First is that Nhlanhla Nene, the new minister of finance, cannot position himself above the fray. He cannot leave officials of National Treasury, who’ve expended endless effort in consulting with every nook and cranny of interested parties including trade unions, hanging out to dry in the internecine conflict that threatens.
He must provide the leadership, afforded by his office, to bring the factions into line behind the department that he heads. Presumably it’s government, not labour, that runs the country.
Second is that a mass educational campaign, particularly on a topic so vital as retirement-fund reform, cannot be conducted by press release. An inflammatory newspaper report, followed by a considered Treasury response, simply doesn’t cut the mustard. Painful lessons are being learned, yet again, that the absence of ground-up savings awareness allows space for populist hell-raising.
This was illustrated in July by a “warning” from the National Union of Mineworkers (NUM) that the introduction of mandatory preservation could cause widespread strikes and protests. The warning is to be taken seriously, not only as an indicator of tensions within Nedlac but also because preservation is a pillar of retirement reform. Misinterpreted and misunderstood, preservation becomes political firewood.
NUM general secretary Frans Baleni has stressed that he is not opposed to the principle of preservation. However, he urges, better “education” is needed because union members believe government intends to steal their money. He speaks of a “united labour” against Treasury and expresses anger that it had developed timelines before Nedlac had agreed to the proposals.
The best Treasury could do in reply was put out a factual statement on the impact of the proposed retirement reforms, hoping beyond hope that it would be widely disseminated and properly interpreted. At this late stage, it’s ominous that Treasury still has to provide assurances. Government “has no intention to nationalise people’s pension/provident funds or prevent them from accessing their money”, it says defensively.
These are signals of a hothouse once more in the ascendency. Recall that it’s been a decade since Treasury published its first discussion paper on retirement-fund reform. Are we in for another decade of excitement and stalling, excitement and stalling? Please not.
But intimations from within Nedlac are that labour representatives are giving Treasury a hard time, turning their back on preservation until government has in place a mooted National Savings & Social Security Fund and a National Health Insurance scheme. Since these will take years to design and implement, the proposed P-Day – when preservation becomes mandatory, with all its flexibility to accommodate lower-paid workers – might not be around the corner.
Perhaps the labour representatives are exploiting the preservation issue to force government into commitments on an NSSSF and NHI; at the outset, Cosatu’s stance was that it would not support retirement reform until an NSSSF was in place. Or perhaps this is part of the interplay between rival unions; the Cosatu-aligned NUM, for instance, wanting to grandstand against Amcu. Or perhaps it’s a convenient lever to undermine Treasury; some union factions are not enamoured by its support for the National Development Plan.
Either way, the imminence of mandatory preservation possibly dissipates. Either way, the threatened resistance to preservation can become as explosive as it was in the early-1980s, leading to strikes so protracted and violent that eventually government had to abandon its attempts to introduce preservation (TT Sept-Nov ’12).
Then, the fuel was about an apartheid government wanting to use workers’ money for financing of government projects. Despite key differentiators, this time it’s an ANC government that isn’t trusted.
Treasury has consulted this way and that, through every representative forum that it can, but seemingly its message has not got through to rank-and-file workers. Therein lies the danger for political manoeuvre. Once the warning of a tinder box has been given, more effective methods of mass communication must be found – they do exist – to get across not only the benefits of preservation to individual fund members (like compound interest) but also the impacts relative to their individual circumstances (like withdrawal allowances).
For these Treasury proposals are preservation ‘lite’, bending backwards to minimise and even avoid adverse effects on the lower-paid: protection of vested rights (any rights now in force won’t change), access to pre-retirement savings (ability to cash in up to R150 000 as a lump sum), a gradual transition to new annuitisation requirements (retirees from provident funds to start being affected from 2020), and so on.
In reality, lower-paid workers will hardly be affected by preservation. The majority, shown by research to have less than R150 000 in retirement savings, won’t be affected at all. They’d be no worse off with the present social grants, but conceivably better off with an NSSSF and NHI. Hence the linkage. It’s clever politics, but paradoxical. A strikes-ridden economy makes social security all the more difficult to finance.
Delay or no delay of P-Day, set for March 1, the rest of the reform process seems relentlessly on track: default options, portability, product simplification, cost reductions and the like. T-Day, when the tax changes and savings incentives take effect, remains immutable for this same date.
So much good work has been done. So myriad are the advantages to be derived. So much damage can be caused by their disruption.
Minister Nene now has the opportunity, and the obligation, to be heard.
EXAMPLES OF HOW THE ANNUITISATION REQUIREMENT
Scenario 1: All provident fund members who are 55 years old and above on 1 March 2015 will not be affected by the change.
Provident fund member A is 55 years old on the date of implementation of legislative changes (1 March 2015) and has accumulated R350 000 as at 1 March 2015. At retirement on 1 March 2020, member A is 60 years old and has accumulated an additional R70 020 (i.e. "new contributions after 1 March 2015). Member A, will therefore, upon retirement, be entitled to take the entire provident fund benefit (i.e. R420 020) as a cash lump sum.
Scenario 2: A provident fund member who is less than 55 years old on 1 March 2015, with new contributions below the de minimis threshold amount of R150 000
Provident fund member B is 50 years old on the date of implementation of legislative changes (1 March 2015) and has accumulated R280 080 as at 1 March 2015. At retirement on 1 March 2025, member B is 60 years old and has accumulated an additional R140 040, Member B, will therefore, upon retirement, be entitled to take R420 120 as a cash lump sum at retirement (made up of the first R280 080 plus R140 040 which is the benefit accumulated after 1 March 2015). Member B is not affected by the annuitisation requirement because the amount accumulated after 1 March 2015 (i.e. new contributions") is less than the R150 000 de minimis threshold amount.
Scenario 3: A provident fund member who is less than 55 years old on 1 March 2015, with new contributions above the de minimis threshold amount of R150 000
Provident fund member C is 45 years old on the date of implementation of legislative changes (1 March 2015) and has accumulated R237 000 as at 1 March 2015. At retirement, on 1 March 2030, member C is 60 years old and has accumulated an additional R210 000. Member C, will therefore, upon retirement, be entitled to take R307 020 as a cash lump sum at retirement (made up of the first R237 000 plus R70 020 which is one-third of (R210 060) the benefit accumulated after 1 March 2015, i.e. “new contributions"), and the remaining (two-thirds) R140 040 must be used to purchase an annuity/pension.
Source: National Treasury