5 Changes that pensioners can expect to retirement legislation

Pensions are a way to ensure that we get an income in our golden years when we stop working. Over the years the guarantee of that income has diminished as government tries to shift more responsibility has shifted onto people.

Saving for retirement isn’t easy, particularly as there’s lots of technical jargon to understand.  Retirement terminology has changed drastically in recent years as rules are changed and reform is introduced.

If you’re struggling to understand the pension rules and technicalities here’s a quick-fire list compiled by Joon Chong partner of Webber Wentzel and Raeesah Shaik, candidate attorney form Webber Wentzel. They highlight the five most important reforms you should keep an eye on and discuss with a professional financial advisor.

1. Two pot system

The government wants to address the age-old problem of employees accessing their pension when they resign from their jobs. To address this the government wants to ensure that we all have a savings portion and a preservation portion for retirement.

Webber Wentzel explains that the proposal will result in all retirement funds with a 1/3 accessible savings pot and a 2/3 retirement pot. This 2/3 pot can’t be touched till retirement.

The team from Webber Wentzel explains: “In practice, a member could withdraw once a year from their savings pot, subject to a minimum, but will incur the cost of withdrawal and a tax liability. Vested rights accumulated prior to implementation of the two-pot system will remain subject to the current rules.”

2. Umbrella funds governance

It’s often not financially feasible for small companies to maintain a retirement fund for employees. Employees therefore get the option to join a multi-employer retirement fund or umbrella fund.

The problem here is that a few governance issues have cropped up with this, including employers not paying contributions, the inability of employers to switch between umbrella funds, high costs, and an overdependence on service providers for advice and the appointment of board members who are also consultants and service providers of the same fund.

Solutions for this include requiring that board members can’t belong to more than three boards a year, looking at whether umbrella funds are value-for-money and more disclosure around cost.

Ismail Momoniat, acting director-general at National Treasury said that South Africa could implement elements of the UK Master Trust Scheme and the Chilean Pension auction system to enable stand-alone funds to select and appoint default “consolidation” or auto-enrolment funds when they need them. These elements would be regulated by the Financial Sector Conduct Authority (FSCA).

3. Auto enrolment

South Africa has a poor savings culture and, according to Aon only an estimated 6% of people living in the country can retire comfortably at the age of 65.

To address this problem, the government want to phase in auto enrolment for all including contract or ‘gig’ workers.

4. CoFI Bill

It’s a mouthful but the Conduct of Financial Institutions (CoFI) Bill outlines what customers and industry stakeholders can expect from financial institutions. It will be tabled in parliament later this year.

Momoniat said that all public sector retirement funds, including the Government Employees Pension Fund (GEPF) will be subject to the same legislative and regulatory requirements, to ensure that members of all retirement funds enjoy similar protections and rights.

5. Regulation 28

Those responsible for investing the funds in retirement schemes are not allowed to put the money into whatever they like, and Regulation 28 ensures that this is adhered to and that there is some balance and order.

Portfolios must be diversified, and this ensures that most retirement nest eggs aren’t to exposed to aggressive asset classes that could lose them a lot of money if things go wrong.

For example, Regulation 28 prohibits investments in crypto assets until their regulation is formalised. Adjustments to Regulation 28 are being made too. For example, private equity exposure has been increased from 10% to 15%, while another proposed amendment includes the limit of housing loans exposure from the current 95% to 65%.