Treasury rejects DA proposal to allow leveraging of pension fund assets
Dion George says the amendment is needed now as, amid Covid-19, workers are resigning to access their pensions due to financial hardship
The Treasury has rejected a DA-proposed bill that would allow pension fund members to leverage their pensions for their own benefit, pointing to the already high level of indebtedness and low level of savings in the country.
The DA private member’s bill — the Pension Funds Amendment Bill — proposed by DA MP Dion George would allow pension fund members to take out loans using their pensions as security.
But Treasury deputy director-general (DG) Ismail Momoniat, in response to George during a meeting of parliament’s finance committee on Tuesday, said his department has concerns around the bill inviting more problems.
“The biggest problem is that South Africans don’t save enough and are highly indebted,” he said, adding that while retirement savings are meant for retirement, pension fund members do not preserve their funds; they cash out their savings when they resign.
“While we think that there is a role for some limited withdrawals, the bigger issue is to get preservation so people don’t cash out each time they change their jobs, to close that loophole,” Momoniat said, adding there has been a lot of abuse on the borrowing side for those funds that allow it.
Currently, under the Pensions Fund Act, pension funds are allowed to offer members the possibility of leveraging their pension funds for loans to purchase a home or to improve it. This provides them with a lower interest rate as the loan is fully secured. The loan is often paid off by way of a salary deduction. No withdrawal from the pension fund is required and pension assets remain invested.
George said that pension-backed home loans are an acknowledgment “that a trade-off exists between a member being able to live now and living in retirement. There is no point in being homeless when a member has built up assets in a pension fund that can assist in providing for personal safety now”.
The proposed bill would impose no restriction on the purpose of the loan but set its limit at 75% of the value of the pension fund. Pension fund trustees would have the right to decide if they want to offer loans against the loan limits and financial institutions would decide if they want to offer a loan.
George said his amendment is needed now as, amid the Covid-19 pandemic, workers are resigning from their jobs to access their pensions as the only solution to their financial hardship.
“Members are facing severe financial hardship despite owning a financial asset,” George noted. He said he had received 346 comments on his proposed bill.
On criticism that fund administrators would be required by the proposed amendment to expand their administration to facilitate the loans, George argued that if loans were not restricted to home loans the administration process would actually be easier.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.