National Treasury (NT) proposes to merely require those employers who do not provide retirement funding vehicles in terms of negotiated employment conditions to provide payroll facilities and to inform their employees about their retirement funding options. The Institute of Retirement Funds (IRF) is concerned that such a less compulsory environment will begin to undermine the successful levels of retirement savings as individuals opt to fall outside of existing occupational funds and choose not to contribute or to reduce, over time, their levels of contribution to individual retirement funds and/or the National Savings Fund, to the lowest minimums.

The voluntary savings ratios have been declining over the years and it is a grave concern that open voluntary participation in retirement funding vehicles will further undermine retirement provision.

The open choice of vehicles will lead to the employer’s occupational retirement fund suffering the loss of economies of scale as well as the benefits of cross-subsidisation of costs and ancillary benefits between low and higher paid employees, as employees choose to contribute elsewhere.

A more voluntary participation to the National Savings Fund (NSF), particularly by those lower-paid individuals falling currently into compulsory occupational retirement funding vehicles, through choice as well as scope to potentially contribute irregular contributions and through access to their savings benefits for life crisis needs, may significantly undermine the levels of retirement funding for these categories of employees.

Lower-paid members receiving smaller benefits from occupational funds should also enjoy the means test exemption and be entitled to receive State Old Age Pensions (SOAP).

Equally the tax treatment of these individuals should be harmonised across all retirement funding vehicles and Retirement Funds Tax should not be levied.

The IRF supports the proposals of NT to preserve exit benefits but also recognises the need to consider earlier access in times of life crisis.

Such earlier access and access to lump sums on retirement may be discouraged through the imposition of more penal tax rates which aim to claim back such portions of tax relief already granted to the individual. Minimum amounts available as cash lump sums may also be considered.

The opportunity for members to default on housing loans granted under guarantees of retirement benefits to gain access to retirement funding capital will also need to be considered. The provision of guarantees will also need to be considered in relation to retiring members ordinarily only entitled to gain access to no more than one-third of their benefit.

The IRF supports NT proposals for the limitation of lump sums on retirement. However the consideration of a phasing-in period or granting those members who have saved for their retirement under a provident fund regime the retention of their vested right to take their benefits as lump sums, is critical.

The lessons of the early 1980’s where massive withdrawals occurred in response to Government’s proposal to compulsory preservation need to be taken into account.

Massive withdrawals from voluntary preservation funds are likely to take place should there not be vested rights or phase-in periods.

The IRF has been passionately involved in facilitating training for retirement fund stakeholders and will continue to work with the SETAs to ensure not only the centralisation and co-ordination of consistent standards of education but also that basic financial and retirement fund literacy is incorporated into as many basic skills programmes as possible. The IRF would encourage basic education at high school level but is also eager to implement training across all employment sectors through the use of the skills development initiatives. The effect of up-skilling of workers through voluntary participation in Sector Charter objectives and targets is recognised.

The IRF aspire to the implementation of minimum levels of education for trustees over time. The IRF is concerned with NT proposals to require that the standard for trustees be changed to one of the "prudent expert" as the current levels of trustees’ competency will cause most trustees to fall outside of these requirements.

The IRF are eager to work with NT to develop appropriate measures for the mentoring of trustees through not only formal education programmes but also through the provision of guidelines to trustee boards to, for example, stagger the terms of office of trustees so that there are always some experienced trustees who can mentor new trustees, as well means to ensure that the board at all times consists of knowledgeable and passionate trustees.

In the same way that members have derived benefit through access to retirement fund benefits by means of direct loans or by way of guarantees for housing, so too could the consideration of provision of retirement benefits for the provision of HIV support and health programmes. Members who have access to such support are likely to live longer and be able to claim their retirement benefits and the increasing cost of risk benefits will be better contained.

The IRF supports the socially responsible investment proposals and notes that the right mindset to such investments is created through a more voluntary process such as the Financial Sector Charter. If the need be the granting of incentives to so invest could be considered such as the removal of Retirement Funds Tax on the income etc.

The IRF cannot emphasise enough that the review of taxation, now long overdue, needs to urgently follow the progress made with regard to the reform discussions and proposals that has taken place so far.

Thank You