The regulations, which also require provident funds to annuitise, were supposed to take effect on March 1 this year, but were postponed due to concerns that members would not have access to pension benefits prior to retirement once the new regulations were introduced. This fuelled premature resignations to access retirement funds.
The reform proposals are part of a broad overhaul of the retirement industry, which aims to encourage household savings and assist vulnerable individuals. Labour unions have criticised some proposed changes, notably compulsory preservation, and say they want more clarity on social security reform before they’ll support further amendments.
Speaking at the 10X Investments Retirement Fund Conference, Olano Makhubela, chief director for financial investments and savings at the National Treasury, said many of the early fund resignations appeared to be related to high levels of indebtedness among public sector workers such as teachers.
Makhubela said they hope the regulations will come into effect on March 1 next year. “We are engaging the unions and Nedlac partners to see how best we can accommodate each other and what the concerns are.”
He reiterated the overhaul was not an effort to nationalise retirement savings but rather an attempt to bolster governance measures to ensure structures and systems benefit employees. The National Treasury published the Draft Taxation Laws Amendment Bill for public comment last week. The bill effectively “brings back” the postponed legislation, Makhubela said.
It also published draft default proposals for comment. The draft regulations require all retirement funds to operate default policies that are in the long-term interests of members, rather than service providers. Default options are automatic choices made on behalf of members who do not exercise their choices in a given situation.
“There is currently no requirement for [retirement] funds to provide default options and, where they exist, current defaults often favour the interests of service providers, often working against the interests of members,” Treasury said. Defaults could relate to the investment, annuity and preservation strategies employed by the fund.
The draft regulations try to take advantage of behavioural finance principles, which suggest that properly designed default products and systems have a positive outcome as these members tend to stick with the default rather than exercise their right to exit.
Right to exit
Makhubela, however, emphasised that the right to exit the default will “always be available” to members. Alvinah Thela, director for retirement funds at the National Treasury, said the new regulations wouldn’t deny members access to their funds, but would encourage them to keep their benefits until retirement.