Early access to pension funds unwise

Many times a year, financial experts will tell us about how badly indebted we are and how irresponsible we are when it comes to credit. And, our national taste for expensive toys frequently exceeds our capacity to pay for them.

That is why it is so worrying that Finance Minister Tito Mboweni, strongly backed by the unions, wants to amend the law to allow workers to access their pension funds before they resign from a job, or they retire.

Mboweni said workers should be able to access a percentage of their pension fund “in this time of difficulty”.

On cue, the unions chimed in to support him, claiming that this needs to be done because the private sector had been given financial support by government in the economic turmoil wrought by Covid. That comment is confirmation of the need for mathematics literacy across our functionally innumerate nation.

The difference in financial support for companies and workers accessing their pension funds early is that the workers would be using their own money to prejudice their own financial future.

While there are hordes of people struggling to make ends meet, using retirement savings to take care of current liabilities is, we would argue, the very definition of fiscal insanity. Retirement funding works like compound interest – the more you have the more you get.

Drawing money out early will inevitably mean there will be less money when retirement finally rolls around.

And, let us lay that out for you, Mr Minister: That means many more older South Africans (who, in line with world trends, will be living longer) will be unable to take care of themselves in retirement because of this idea.

That means taxpayers will have to foot the bill for increased state grants. There’s an old saying which sums this up: Penny wise, pound foolish.