Cosatu tackles retirement funds

2012-11-10 14:15

Issues of compulsory preservation and government’s insistence on full preservation not sitting well with the labour federation

Trade union federation Cosatu has threatened to go on strike to demand an amendment on proposed retirement fund laws, despite the state already having made the changes it demands.

Cosatu has repeatedly rejected proposals to introduce compulsory preservation of retirement funds. This week, general secretary Zwelinzima Vavi threatened to mobilise mass action if certain provisions in the Financial Services Laws General Amendment Bill were not amended.

The National Treasury had already issued an amended version in September which allows for limited liability. As long as the regulator has acted in good faith, it cannot be sued. It could be sued, however, if it acted negligently.

In the original amendment bill, financial regulatory institutions such as the Financial Services Board would be exempted from any legal action brought against them by retirement fund members. Vavi believed that this would be detrimental to the rights of millions of pension fund members.

Addressing the issue of compulsory preservation during a speech at the Nedlac National Labour Constituency Retirement Funds Conference, Vavi said:

“. . . while this (compulsory preservation) may be correct for workers in secure, permanent employment, it cannot be justified when there is no income support for the majority of workers who lose their jobs or are unemployed or in precarious forms of employment.”

According to the Treasury’s discussion document – titled Preservation, Portability and Governance for Retirement Funds – one proposal is for a three to five-year monitoring period to analyse the response of individuals to new proposed default arrangements. This in order to see if this is sufficient to increase preservation without enforcement.

Although a member could opt to cash in their pension fund, the Treasury proposes increasing the tax paid on withdrawal benefits and members would also be required to obtain advice first.

If at the end of the monitoring period there is no improvement in preservation rates, the issue could be revisited and more stringent legislation could be considered.

The Treasury has proposed the preservation of two-thirds of new contributions and growth on the investment after the introduction of the legislation.

This will be accompanied by a substantial increase in the tax payable on any withdrawal of the one-third before retirement, which can only be accessed as a monthly income.

This proposal could possibly allay union concerns around access to retirement funds for emergencies while discouraging such behaviour as resigning from an employer, or even getting divorced, to access one’s retirement fund.

The final proposal, which Cosatu has vehemently opposed, is that government insists on full preservation of new contributions and growth after the legislation date.

The rules would, however, allow for a withdrawal in the case of retrenched individuals.

Industry analysts believe that this move is unlikely as it would create a disincentive to contribute to a retirement fund.

There is also an understanding at the Treasury level that, for many lower income earners, their retirement funds are often their only form of saving, which includes short and medium terms needs.

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