As the early bird catches the worm, the early saver builds a comfortable retirement nest. But people who gain early access to their pension savings and spend them before they are retired create major problems for the future of workers and government – which hopes to establish a stronger savings culture in order to create financially stable pensioners.
As the early bird catches the worm, the early saver builds a comfortable retirement nest. But people who gain early access to their pension savings and spend them before they are retired create major problems for the future of workers and government – which hopes to establish a stronger savings culture in order to create financially stable pensioners.
The Fin24 website reported that the treasury will be releasing a document this month to discuss a way for the government to lay down legislation making it harder for people to cash in their pension benefits when they change jobs.
Ultimately, the plan is to initiate a compulsory pension system which will compel millions to save for retirement and reduce their dependence on the state.
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. Rohan Stroebel, an independent financial advisor at Rohan Stroebel CC, in Grahamstown, believed the proposed law to be 50 years overdue.
“People are changing jobs often these days,” he said.
“After settling their bonds and mortgages they are left with insufficient pension funds and become a burden on the government.”
There are currently three options available when workers switch jobs: they can cash in their pension fund, transfer it to the next company’s fund or transfer it to their own pension preservation fund. Stroebel said that less than 10 people in 100 who retire at the age of 65 are self sufficient, and “in order to retire financially stable, you should be contributing to your pension fund between the ages of 20 and 60 years.”
Rosy Walker, the local Pick ‘n Pay’s financial manager, said that their employees have a Provident Fund that they can either cash in or transfer. According to her, compulsory pension savings would be “the best thing the government could do”.
“So many people are cashing in their pension and changing jobs and are ultimately left with an insufficient amount to live off once they are pensioners,” Walker said. It is uncertain how workers would react to the legislation, but Walker predicted that “some people will see the benefit, but most people will not understand… They are used to getting their money straight away.”
