Experts on the fence about idea of pension fund withdrawal

The idea of messing with one’s pension fund seemed at odds with providing for one’s retirement, although financial advisors were cautious about dismissing the idea completely after it was mooted by Finance Minister Tito Mboweni this week.

Fintech entrepreneur Sam Beckbessinger was on the fence about the government’s decision to consider limited withdrawals from pensions.

“It was risky to push this type of complex financial decision-making on to the individual when we had a very low level of financial literacy as a country,” she said.

“It could be very difficult to decide whether it was better to pay off debts now, or invest for your retirement.”

The country required a bolder, wider-scale solution to poverty and the creation of economic opportunity for more people.

“It was okay for a quick fix like this to be one small piece of helping households find relief, but it must lead to more comprehensive economic reform or there would be the real risk that it would help families in the short term, but harm them in the long term.”

Standard Bank economist Elna Moolman said banks would consider such interventions as part of the broader set of support measures.

“This included the extension of the [Temporary Employee Relief Scheme] programme, the presidential employment programme [which was scaled up since its introduction at the end of last year], and the sizeable relief to households from the reintroduction of the social relief of distress grant until the end of March, 2022.

“Given the fiscal constraints, government considered the pension proposals, although as Treasury officials stressed yesterday, any such access would be under very specific circumstances and very limited,” Moolman said.

Economist Iraj Abedian said the consideration of the withdrawal of retirement packages was a result of the dire problems the economy faced, “which included economic contraction, the Covid pandemic and lootings”.

The government had a difficult decision to make.

“On the one hand, the government had an existential need to consider and to deny workers their pension funds would be a social problem, which would ultimately lead to a political problem.

“On the other hand, to allow them to take their only source of survival under duress and for reasons outside their control because of political and state failure, meant making them vulnerable for the rest of their lives.”

Meanwhile, the Congress of South African Trade Unions (Cosatu) fully supported Mboweni’s idea of making retirement packages accessible for withdrawal.

“We made this proposal to the finance minister and [he] responded in a lukewarm fashion in a meeting that was conducted last year, but welcome the decision being considered,” Cosatu spokesperson Sizwe Pamla said.

“South Africans were unable to create the domestic demand required by the economy because their money already had other obligations.”

Pamla added workers were given an Unemployment Insurance Fund stipend but it was not enough to sustain families. This meant consumers lagged in their finances; some of them were likely to lose houses and cars.

“Consumers can choose to not withdraw their retirement packages… The problem, though, was by the time they received their packages, they would be starting from scratch financially because of the debt they incurred and were not able to pay off,” he said.

– asandam@citizen.co.za