Is a pension fund also a distress fund? 

Treasury says pension fund Bill jumping the gun

….article dated 9 September 2021….

The argument against dis-allowing a portion of a pension fund to a members has been around for as long as the mantra that by disallowing any access at all, the state will benefit by having less uninsured old-age cases on its hands. The Pension Funds Amendment Bill could well change this policy adopted by National Treasury.

Eventually more members benefit by provision of savings for their senior years, it has always been said. The Bill before Parliament to change this has already earned the ire of National Treasury primarily because the proposal was tabled before they could incorporate a similar idea into this year’s budgetary considerations, some MPs have said.

No options left

The problem area has always been that in troubled times, where many pension members are staring down the financial barrel, resignation from a job to obtain cash from a fund seems the only option.    It is, after all, their pension fund money and their crisis.  Being unable to rescue themselves has always seemed to be the result of a somewhat patronising attitude by the authorities, say the proposers of the Bill, the Democratic Alliance.

Now the Pensions Funds Amendment Bill, proposed by the DA as a private members Bill, has suggested a compromise or modification to the current standing situation with a scaled-down loan, naming “distress caused by the Covid 19 pandemic” as the reason for tabling.

Times changing

Says the DA, in a statement presumably aimed at the old-school way of thinking, “It is offensive to assume that all individuals will be reckless with the provision of the loan facility”. Yes, this an attitude which has been entrenched in the public space since cartoonists first drew a picture of an aloof Dickensian banking character with a pen staring at a hapless applicant for a loan. The DA, however, thinks more seriously about this.

Nobody in the financial institutions seemed really prepared for the Pensions Funds Amendment Bill, an overall feeling evident in the hearings recently conducted before the Standing Committee on Finance.  It seemed, from the presentations on virtual, that a few were wondering how a Bill, not backed by National Treasury and the prudential authorities, had got this far.

Parliament’s own Bills

Such instances of surprise happen quite often when slow-moving government departments are prodded by a private member’s Bill from an MP flagging attention to a particular subject.  More often than not, the member’s Bill is overtaken by a hasty minister’s Bill from the relevant department to put things right.

It is unusual to see a private member’s bills on financial legislation, however, where the ground is strictly reserved parking for Treasury, the Reserve Bank and prudential authorities. The Pensions Funds Amendment Bill was drafted by well-known Dr Dion George (DA), who is an economist of merit. The subject matter is well-trodden.https://www.polity.org.za/article/da-dr-dion-george-address-by-das-shadow-minister-of-finance-during-the-budget-vote-debate-on-statistics-sa-parliament-06052015-2015-05-07

Gold standard

A pension fund stands as a bulwark in the nation’s asset register and any threats to the status quo will tend to raise eyebrows, Dr George acknowledged.   Accordingly, the wake-up call was made in the call for comments, and Parliament received submissions from the Association for Savings and Investment South Africa; Banking Association of South Africa; South African Institute of Chartered Accountants; and the Institute of Retirement Funds Africa.

It was evident from the presentations that all were worried where such a runaway idea might go too far as a loose cannon, with tax and loan provision implications not being considered in full.   In general, and in the interests of précis, all rejected the Bill in principle, some adding sweetheart comments that they fully understood the times everybody was experiencing and the financial pressures that were prevalent.

Recommended by all four, however, was that nothing goes ahead without National Treasury or the Reserve Bank on board.  In general, the Bill did not receive their support.

Good idea

Federation of Unions of South Africa (FEDUSA) and Congress of South African Trade Unions (COSATU), however, who have been calling for some time for such openings for workers members upon pension funds deducted from wages in many highly publicised moves, were in favour of the idea with limitations.

They suggested lowering the surety limit to 30% of the fund instead of the 75% limit as proposed by the DA.

In discussion,  Dr Dion George conceded the FEDUSA suggestion was a good one and said he very much wanted it to be part of the DA proposal and his suggestion changed, providing of course that FEDUSA and COSATU added their votes in favour of the Bill.

Cold water

National Treasury (NT) then joined the briefing with their views.  From the start, they were clearly dead against the idea, particularly in so far as the timing of any changes to the status quo is concerned.   Ismail Momoniat indicated that the Bill before MPs was premature and had insufficient safe guards for like of NT.

Their ideas, which are to be announced in this year’s Medium-Term Budget Policy Statement (MTBPS) by the Minister, is a “two-pot system” where 80% of a member’s monthly contributions will go, in the first instance,  towards one account, or pot, of preserved funds for retirement. Then a second amount of 20% will go into a second interest bearing account, or pot, for “limited withdrawals under certain circumstances”.

Slow down

NT entreated Dr George to halt the current parliamentary process on his Bill until NT publishes its proposal, which they insisted was more extensive in its conditions and safeguards, a Bill which Ismael Momoniat, DG of Treasury Policy, said the Minister of Finance supported.

He said once the concept was introduced in the budget proposals with all tax and procedural alterations introduced, the Finance Standing Committee could then consider the private members Bill before them “allowing the Committee to make choices” without rushing ahead in haste before the Budget.

Implosion

The final choice, properly worded, could then be accompanied by a Money Bill rather which would take the matter straight into current budgetary calculations, Ismail Momoniat said.  He then pointed out to MPs, in a stern manner, that the introduction of such a change during these hard times as a standalone piece of legislation without severe limitations and controlled circumstances, could set off problems, and “could pose great risk with the wiping out retirement fund savings.”

This raised the ire of Dr Dion George who said this “illusion had gone on for far too long”. There were some angry exchanges between Treasury and George, it being the DA’s view that Treasury had been “hanging on to this necessary change to legislation for years doing absolutely nothing just because it was difficult to deal with”. Dr George said it was a fallacy that risk to retirement funds existed. “These myths have been part of the pension tool bag for far too long”, he said.

Not the same

Dr George said he was exhausted from emphasising that no monies are withdrawn from any retirement pension fund and that the fund was used as surety.  “A loan on the fund differs from a withdrawal against the fund, he said, since as a loan it had to be repaid and like a home loan, with assessments and repayment conditions and with the strong possibility of a satisfactory

conclusion.

Ismael Momoniat maintained once again that proposed Bill before the MPs was “basically flawed”.  He said that no details are given on the Bill before him on processes to be followed on granting and repaying loans; nothing whatsoever on what to do in the case of default; and a complete absence of any detail on how to handle the myriad of tax implications that were inherent in the system as suggested.

Warning

“These essential details have to be legislated for”, said Momoniat. “This is where the risk to savings and retirement funds exists.”   As it stood, Treasury repeated, the Bill before the Committee posed a great risk to the retirement system, bearing in mind there was already an abuse problem in the system of the pension-backed home loans.

Chairperson Joe Maswanganyi told the Committee that the processing of the Bill had continue since in terms of parliamentary rules what is tabled must receive full consideration in terms of a full debate by all parties.  Just shutting off the processing of the Bill could  lead to litigation by the DA, he warned. “Members must make a decision on this Bill, in line with their mandates of each party in the normal way.”

Bad times

Dr George concluded the tabling of his Bill by stating, “The argument presented by some that the loan scheme would only benefit a few simply contradicts their same argument that the scheme could potentially disrupting the entire retirement fund system. I cannot understand that argument or that in any way the proposals affect the Income Tax Act”

Chairperson Maswanganyi asked for clarity on the procedure for amending the Bill to limit the loan facility to 30% in the Bill. He was advised that the next step would be to consider a motion of desirability on this and if the Committee agreed, then the proposed changes will be included in the Bill after which full debate on the final proposals could commence.

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