Treasury: Saving must become law

2011-08-21 15:30

Johannesburg - The Treasury will next month release a discussion document to pave the way for government to lay down legislation making it harder for people to cash in their pension benefits when they change jobs.

This forms part of its plan to introduce a compulsory pension system which will force millions to save for retirement and reduce their dependence on the state when they become pensioners.

Olano Makhubela, Treasury's chief director for financial investments and savings, said this week that the legislation - which will focus on enhancing preservation of pension benefits - could arrive before the end of next June, after the government has engaged in extensive public consultation.

"The legislation will introduce some form of mandatory preservation until people retire or are disabled. Under certain exceptions, we are proposing a restricted withdrawal arrangement, but you can’t withdraw everything," he said.

The second phase of rolling out the compulsory pension system will involve the establishment of a national social security fund, to which every working South African will be forced to contribute.

Treasury is formulating a discussion paper dealing with the nitty-gritty of setting up the fund. The timeframe for the fund has yet to be worked out.

"A lot of work has taken place and we want to get it right the first time round. I am confident we will see it in our lifetime, but it is a big project," Makhubela said.

Frank Richards, head of asset consulting for employee benefit investments at Momentum, believes compulsory preservation is essential to solve the problem of people retiring without sufficient savings.

"We also need to introduce a tax legislation that supports savings. For instance, the interest that you earn on your savings must be tax-free," he said.

But South African Savings Institute deputy chairperson Dr Sheshi Kaniki has warned that rising unemployment and high levels of indebtedness could frustrate plans to force people to save for retirement.

He advised government to build flexibility into the legislation to allow pension contributers to access their benefits should they encounter hard times.

"It is not easy to preserve if you are without a job and income. I think the preservation rule should be waived in special circumstances to allow people with no income to access their savings," he said.

Kaniki encouraged government to go ahead with the pension reforms but advised that in order for the reforms to be effective, they needed to be supplemented by improved financial literacy and a culture of saving.

The mooted system has also been touted as South Africa's best hope of boosting national savings.

Makhubela said: "If we want to grow at 6%, we need to push the gross savings rate to at least 31% of the gross domestic product (GDP).

"We need to focus on households, because they are contributing less to gross savings. In the first quarter of this year, households contributed 1.5% to the country's gross saving rate of 16%, while corporates cover the bulk."

During the past 31 years, the gross savings rate has declined to 16% from 33%, making South Africa one of the poorest savers in the world.

A World Bank study noted that countries that grew at rates of above 6% over the last 18 years had average saving rates of 31% to GDP, like China at 40%, India at 23% and Botswana with 38%.

Makhubela also said higher gross savings would help South Africa to be less reliant on capital inflows to finance its savings deficit, which is financed by short-term capital inflows or pools of savings from foreign countries.

These capital inflows tend to leave the economies of developing countries during periods of financial crisis, disrupting their economies by weakening their currencies and triggering inflation. The rand lost a chunk of its value when the credit crisis hit in 2008.

Makhubela added that a country with a large pool of savings stood a better chance of staving off financial crises like the ongoing debt crisis in the US and Europe, because it can rely on its own savings.

He singled out Japan, which relied on its national savings to rebuild its infrastructure and economy in the wake of an earthquake and tsunami which struck the country earlier this year.

"You don’t need to rely too much on short-term capital inflows if you have high gross savings because short-term capital inflows can ­easily and quickly be withdrawn.” 

  • Spyker May - 2011-08-21 14:49

    Why must we save while the rulers steal..?

  • GJB - 2011-08-21 15:13

    I think South African Savings Institute deputy chairperson Dr Sheshi Kaniki has said it all.

  • umlaut - 2011-08-21 15:24

    It is a very very simple formula---if people are not over taxed they will save something-- To force people to do something (except for obeying the law) then it builds resentment. If somebody wants to save R3 per month and the bank fee is R30 per month-you are actually making that person poorer. But an anc government will probably do something stupid like that.

  • crackerr - 2011-08-21 15:56

    First sort out the nationalization issues. You cannot expect people to entrust their savings or contribution part to pension funds to a system that may turn around and nationalize it. It will be recalled how uncomfortable and even agitated the people were when the proposal of retention of pension funds circulated sometime in the late 90s. The people suspected the government of dirty play.

      Gavin - 2011-08-22 14:33

      You already know the answer to thar question. At least with the management companies there are avenues to pursue if we have complaints. With the govt we can kiss any hope of redress goodbye - things will go the same way as education, health, roads, Eskom, Transnet etc, etc. and then we'll see how retirees are in 20 years time. In the dwang even bigger time than now

  • Skrappie - 2011-08-21 16:57

    How safe will my pensioen savings be in the hands of the government?

      Met - 2011-08-21 19:08

      Its not even safe out of the governments hands. It was reported that pension funds in SA shed R 121 billion this year on the fluctuating stock market, due to the economic woes

  • Obama Bin Laden - 2011-08-21 17:19

    How are we supposed to save when we're being taxed to death?

  • Keith - 2011-08-21 17:23

    Maybe they should decrease all these extra taxes,then we can save. At this moment I am been taxed to death with no hope in site!!

  • Wilma - 2011-08-21 18:41

    Frank Richards, head of asset consulting for employee benefit investments at Momentum, believes compulsory preservation is essential to solve the problem of people retiring without sufficient savings. Conflict of interest there frank. Obviously the more funds under your control the more fees you make. The investment industry rapes the consumer for managing (badly) their funds. Whether or not they make you a loss, they still take their fees. When you retire, you might be left with nothing.

      dave_23 - 2011-08-21 19:36

      Yes, the people who manage retirement funds think that retirement funds should be made compulsory - no surprise there! In other news, the people who sell iPads think that iPads should be made compulsory, and the people who sell Lunch Bars think that Lunch Bars should be made compulsory. There will be no incentive to even try manage these funds properly once it becomes compulsory. There must at the very least be an "opt out" option, there is NO VALID REASON not to have an "opt out" option to allow people to choose to manage their own savings.

      Umfubi - 2011-08-22 10:07

      I have always understood that Lunch Bars *ARE* compulsory. Is that also advertising hype?

  • dave_23 - 2011-08-21 19:33

    There must be an "opt out" option!

  • Schmortlet - 2011-08-21 20:12

    When the real rate of return on savings after bank charges and after tax is better than the inflation rate then it might be worthwhile. This is even more the case for kids saving their pocket money. It is just not an economic proposition. Either the banks steal the money or the tax man does in some way or another.

  • SNOTKOP - 2011-08-21 20:23

    If you are prevented from using your retirement savings to pay of your house as an example, such a scheme will cause chaos, i`d rather be able to take my retirement savings and save my house and worry over my retirement later, than to loose my house that I could sell at a profit later. Sounds like Gov just want to get their grubby paws on our money!

      Margaret2 - 2011-08-22 11:47

      Sounds reasonable to be able to put it into your bond, BUT ONLY if you lose any access facility. Perhaps, also, at a later stage, if/when the house is sold, those "protected" funds should go back into retirement funding.

      Gavin - 2011-08-22 14:27

      What will you do for income when you stop working? Sell the house? Then where will you live. No, we all have to save if we are to have any hope of having a half decent life in retirement

  • Raymond - 2011-08-21 20:52

    The interest on savings is so low that people don't even bother,they rather take a chance and see if they can make more at the Casino. @WILMA,Yes,I agree with you.

  • king stukie - 2011-08-22 06:15

    So now a lap dog for the bankers, a politician, is going to tell me I need to keep store 3rd party promissory notes. Promissory Notes that represent not only a DEBT OWED to the banks but also incur interest and taxes for the privilege of using them. Not to mentioned the fact they can be stolen any time they want through inflation/devaluation. No thanks! The Rothschild owned central banking labour stealing system cat is out the bag. I'd rather store store my wealth in silver and gold and issue my own prom notes. We are all equal before the eyes of the law. "The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." — Rothschild Brothers of London, 1863 "Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild

  • news.moler - 2011-08-22 07:19

    As South Africans we get punished for saving. Our Cpi basket does not take into account a broad enough sample to give true indication of the depreciation middle class investors savings suffer. Coupled to costs on savings such as commisions, bank charges, management fees, collection fees and asset management fees most people would do better (as the old advert said) to invest in used furniture. Appreciating assets will do far better in the long run. The big question is, is the political risk worth saving in? The only option for the Government is to legislate as in a national retirement fund but that wont keep Poo's hand out of the honey jar...

  • Goose - 2011-08-22 07:52

    Hahahahah I have been saying since years before the NATS even handed power over to the ANC that SA is a country where the government actively forces you NOT to save! You put a few bob in a savings account only to have the government take the interest off you. Then when you have saved for your pension your whole life, the government comes along and takes a major portion of the interest. Also your home, you sell or invest in a 2nd one and then pay huge tax on the profit realised. Governments worldwide are manned by money hungry and useless people who innefeciently spend other folks's hard earned tax money.

  • Goose - 2011-08-22 07:56

    Pension fund companies and investment companies are also legal thieves! I have chopped all my policies over the years because the returns were so pathetic and the fees so high. It's totally amazing how governments protect the big corporates who steal peoples savings in pension products, yet for as long as I can remember, I do not know one person who was even remotely happy with the returns achieved on their policies. It always was, and still is legalized theft! Yet these guys take their money regardless of their performance.

      Cui Bono - 2011-08-22 14:00

      Fully agree - the returns on RA's are absolutely shocking. The Insurance companies have their snouts so deep in this trough with their fees etc it is suprising that they can still breathe. And then the bl00dy Govt still wants to tax it to pay for more useless infrastructure (like Soccer stadiums)

  • MALALAPIPE - 2011-08-22 08:40

    i have enjoyed my youth and will continue in this fashion, i dont plan to make retirement, so f@ck off you greedy little money grabbers, you wont get a cent out of me

      Gavin - 2011-08-22 10:41

      Talk to us in 30 years time

  • comrade213 - 2011-08-22 10:45

    How cld u force ppl 2 save without giving them a necessary financial education?

  • errol.wagner - 2011-08-22 12:32


  • Sunny - 2011-08-22 17:30

    And what exactly are we supposed to save? This is the same government that has milked us dry already and still want more by way of the toll fees and the National Health Fund they are creating. Stop the corruption and the government will actually have more than enough to look after all their cows.

  • king stukie - 2011-08-22 18:26

    Yes everyone. Stock up on PRIVATELY issued debt based prom notes.

  • Michael Nash - 2011-08-23 08:30

    Another retarded ploy by Government to make the hard working tax payers pay for the useless people who sit at home and feed off us.

  • quintin.schnehage - 2012-04-18 11:57

    As a young professional who's only just starting to think about my financial future, I'm in two minds about this. On the one hand, I never wanted to be dependent on government. I would like to think that one day I can be completely financially independent based on MY OWN success, without having to worry about whether a change in public policy will see my retirement plan blown to bits. I'd feel a lot more comfortable knowing that my financial future is under my own control, and not in the hands of bankers or policy makers. On the other, I'm rather unsettled that the Treasury is thinking of imposing such measures on the public, even if it will only really be the middle class that will be affected... especially since the government has shown time and time again that what money they do collect from us never goes to good use. This smells of hypocrisy. In all, the article left my slightly unsettled but largely unmoved. As long as I'm secure in my own plans and my own finances, I've got nothing nothing to worry about, and I'm already used to the idea of saving.

  • cameron.briceland - 2012-08-20 12:06

    Saving for retirement must be made law, but the private sector must be mandated to do the planning and yes take all the commision..we deserve it. Further to this we the private sector have all the brain-power.

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