Picture: 123RF/Alexander Raths
Picture: 123RF/Alexander Raths

The retirement reform process might not be closely tied to the main role of the budget — it concerns personal and not national savings.

But this year’s budget coincides almost exactly with the introduction on March 1 of default portfolios. It won’t now be necessary to shop around for an annuity, or to go through the difficult process of picking funds in which to invest. These will be available in each and every retirement fund. So it won’t be necessary to apply for a section 14 transfer to take the money out. And it saves the expense of paying for advice on your pension.

The government had hoped to introduce a comprehensive social security (national retirement) fund in 2010. Fiona Rollason, head of legal services at Alexander Forbes, says that by now everyone was supposed to be contributing a portion of his or her retirement contributions to the National Savings Fund. But when leadership of the project moved from the National Treasury to the department of social security it became one of many social security concerns.

It is still being discussed at length at the National Economic Development & Labour Council (Nedlac). It is unlikely that a state giant would swallow up the private sector funds, and it certainly wouldn’t take over the Government Employees Pension Fund (GEPF).

But while the Nedlac heavyweights talk away there are still piecemeal concessions for retirees. In this budget, any retiree who receives an annuity and did not get a tax deduction on contributions will get the proceeds tax free.

The most controversial aspect of the reform — to make provident fund members take an annuity instead of allowing them to cash in — has been kicked into touch until 2021. But Rollason says retirees will be encouraged to annuitise, as they will get tax-free payouts from all contributions made after March 2016.

The regulator needs the right kind of people to make it work
Rowan Burger

The taxman will also be generous to funds that are winding up and wish to pay out former members, though the payout has to be approved by the minister of finance through the quaint mechanism of a Government Gazette notice.

There seem to be fewer objections to other proposals, such as bringing all public sector funds, such as the GEPF, under the same regulatory framework as the private funds. They would, for example, then make any complaints to the pension fund adjudicator (PFA) instead of to the public protector. There has undoubtedly been a huge downgrade in the reputation of the GEPF’s fund manager, the Public Investment Corp, over the past year, with numerous poor investments coming to light. Under the PFA there would be some oversight of a fund with more than R65bn of annual contributions.

Since last year the industry regulator has changed from the Financial Services Board to the Financial Sector Conduct Authority (FSCA), with a brief to be more "intrusive" than its predecessor. In practice the FSCA is the sole regulator of the pension fund industry as the Prudential Authority concerns itself with systemically important banks and insurance companies. MMI business strategist Rowan Burger says the right people are needed to manage the new regime, and the move of Olano Makhubela from the Treasury to FSCA was a good start.

A more recently articulated aim of the Twin Peaks regulators is to encourage the development of financial technology (fintech, or its cousin, insurtech).

The latest buzzword is "sandbox", or a safe, lightly regulated environment in which fintech products can be developed.

There is even an intergovernmental fintech working group, which has published a consultation paper on buying and selling crypto-assets. It also talks of building an inclusive and transformed financial sector. But thanks to union involvement in starting pension funds, the retirement sector is a lot more transformed than, say, medical aid.

Retirement funds will be subject to the same body of legislation as the rest of the financial sector; the Conduct of Financial Institutions (Cofi) Bill, and the creaky Pension Funds Act of 1956 will soon go. The Budget Review promises that the Financial Sector Laws Amendment Bill will soon be tabled. This should ensure financial stability, which directly and indirectly affects pension funds.

The FSCA hopes to reduce the number of pension funds from about 1,500 to fewer than 200. It also aims to bring governance up to international standards, with audited annual financial statements and a minimum number of independent trustees — though there is no doubt the role of these outsiders would overlap with the fund consultants.

The government must be very tempted to get its hands on the R40bn of unclaimed benefits sitting in funds. Will the new FSCA see itself as an agent of government or an independent arbitrator on this issue?

Similarly, can the PIC claim to be an objective, apolitical asset manager so long as the deputy minister of finance is chair?