Thousands of civil servants continue to put their financial security and that of their dependants at risk by resigning from their jobs, because they wrongly believe that, from March 1, they won’t be allowed to withdraw a cash lump sum.
The Government Pensions Administration Agency has reported that state employees in some regions – in particular, members of the South African Police Service and teachers – are quitting so that they can withdraw all their savings in the Government Employees Pension Fund (GEPF) as cash.
Delegates to the Institute of Retirement Funds Africa’s annual conference last year said fund members are confused about the government’s reforms to the retirement-funding system, and some think they will lose the right to withdraw their savings.
Members’ fears that, from March 1, they will not be able to withdraw their savings are baseless – and members of the GEPF have the least reason to be alarmed. This is because:
* Proposals to make it more difficult for fund members to withdraw cash lump sums before retirement are still being discussed by the government, labour and business. A date for the introduction of measures relating to the compulsory preservation of retirement savings has not been announced.
* The date on which provident funds will begin to be phased out has been moved from this year to March 1, 2016. As is the case with pension funds, provident fund members will, at retirement, be allowed to withdraw at most one-third of their savings as cash, and will have to invest at least two-thirds to receive a pension. However, the harmonisation of pension and provident funds will be gradual, and will affect only contributions made after the implementation date.
* The law requiring provident fund members to convert at least two-thirds of their savings into a pension at retirement will affect only provident funds regulated by the Pension Funds Act. The GEPF is a defined-benefit fund and is regulated by the Government Employees Pension Law.
Karin Muller, the head of growth market solutions at Sanlam, says that people who resign to cash out their pensions are putting their financial future at risk. Research shows that more and more pensioners struggle to make ends meet later in retirement.