New National Treasury Retirement Fund Regulation Doesn’t Help The Blue Collar Worker
30 August 2017
By David Crossley, Certified Financial Planner® Professional
Those of us with long memories will remember when the government brought out the proposed changes to the contributions and the retirement conditions for Pension and Provident Funds. Part of this legislation referred to the encashment of provident funds at retirement and the rules regarding the ability to take all the proceeds in cash were replaced by a set of rules similar to the treatment of pension and retirement annuity funds in that, only one third of the proceeds could be taken and the balance had to purchase some form of annuity.
The reaction from the Unions was swift and brutal.
They almost threatened war if the government did not back down on this new legislation governing provident funds. The government duly did back down and provident funds can still be cashed in on retirement.
This new set of regulations seeks to do exactly what the older legislation changes did not and that is to create a framework to ensure that retirement funds are used for……retirement! The new legislation, at first, does not appear to prevent individuals from cashing in their retirement savings prior to retirement age, but rather provides for a “Default in fund” preservation for members leaving the service of their employers before retirement.
In my opinion, the proposed legislation does not go far enough to prevent people from spending accumulated pension capital. It merely allows employees to leave their accumulated proceeds in their employer’s fund, which up till now they were not able to do.
Admittedly the suggestion is that employees will have to show proof that they have sought retirement benefit counselling before they are able to withdraw their funds, transfer them or leave them with their employers’ fund. But how relevant would this be to blue collar workers with company pension or provident funds?
The default preservation does not apply to retirement annuity and preservation funds.
To me, a perfect scenario would be to prohibit employees from cashing in any portion of their accumulated retirement funds, but that would not go down well with the majority of the electorate who are heavily indebted and seek to liquidate debt before thinking about the future. It seems that we have a way to go as a country when it comes to preserving capital for inevitable retirement in a country that has no social security safety net.
We are behaving like the passengers on the Titanic – the majority of us sailing blithely towards our financial demise with neither a care in the world nor the financial means to avoid retirement poverty.
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