Pension Funds Amendment Bill: briefing on public submissions & discussion

This premium content has been made freely available

Finance Standing Committee

24 August 2021
Chairperson: Mr J Maswanganyi (ANC)
Share this page:

Meeting Summary

Video

In this virtual meeting, the Committee was briefed by the Parliamentary Legal Advisor on the public comments regarding the Pension Funds Amendment Bill. The Committee received submissions from the Association for Savings and Investment South Africa (ASISA); Banking Association of South Africa (BASA); Batsetsa Council of Retirement Funds for South Africa (BATSETSA); Congress of South African Trade Unions (COSATU); Federation of Unions of South Africa (FEDUSA); Institute of Retirement Funds Africa (IRFA); National Treasury (NT); South African Institute of Chartered Accountants (SAICA); and Dear South Africa. Some of the concerns raised included the tax implications of the loan facility, the impact on savings and on the contingent liabilities of retirement funds, and the lack of details regarding the loan provision.

NT, ASISA, BASA and IRFA reject the Bill but have sympathy towards the objectives of the Bill. COSATU AND FEDUSA conditionally support the Bill, with the requirement that amendments be made to address certain weaknesses, such as lowering the loan surety limit to 30% of the fund, instead of 75%. Dr George agreed and proposed that this amendment be drafted into the B bill. He also responded to some of the concerns.

The bill is a Private Members’ Bill sponsored by Dr George from the DA. He pointed out that the Bill was proposed in the context of a pandemic with severe economic conditions. It was aimed at providing relief for people by allowing pension fund members to leverage their retirement assets for a loan. He agreed that there should be qualification assessments and limitations before the loan is given, to ensure that the value of the loan does not deplete the member’s retirement fund or put it into peril.

National Treasury argued that the Bill is flawed because it lacks an explanatory memorandum, a socio-economic impact study and a technical sheet to support it. In addition, it stated that the bill poses a great risk to the retirement system, when there is already an abuse of pension-backed home loans.

National Treasury pleaded with Dr George and the Committee to hold off on the Bill and wait until it publishes its proposal on a two-pot system that will allow for limited withdrawals, whilst maintaining some preservation. The Minister of Finance supports this proposal and Treasury will share more details on it by the time of the Medium Term Budget Policy Statement (MTBPS).

Dr George indicated that he was not open to waiting for Treasury’s proposal and wanted to proceed with the processing of the bill.

The Chairperson suggested that the Committee continue with the processing of the bill, as prescribed in Parliamentary procedure. Delaying the processing of the bill might lead to litigation. Members will make a decision on the Bill, in line with the mandate of their respective political parties.

The Parliamentary Legal Advisor informed the Committee that the next step would be a motion of desirability on the Bill. If the Committee agrees with the changes and goes forward with the processing of the Bill, then the proposed changes will be included in the Bill.
 

Meeting report

The Chairperson welcomed everyone in attendance.  

The Committee Secretariat noted apologies from Ms P Abraham (ANC), who is travelling and from Mr G Hill-Lewis (DA).

Briefing by Parliamentary Legal Adviser
Ms Noluthando Ntlokwana, Legal Adviser, Constitutional and Legal Services Office, elaborated on the public comments received on the 2020 Pension Funds Amendment Bill. NT, ASISA, BASA and IRFA reject the Bill but have sympathy towards the objectives of the Bill. COSATU AND FEDUSA conditionally support the Bill.

NT, ASISA, BASA and IRFA expressed concerns around the impact of the Bill on savings and on increased indebtedness. NT and IRFA raised concerns around the loan provision and said there is a great risk of the proposed loan guarantees negatively impacting retirement outcomes, with long-term consequences far outweighing short-term benefits. NT, ASISA and BASA also raised concerns around the alignment of the proposed loans in the Bill with the National Credit Act.

BASA and IRFA pointed out the implications of the Bill for the state, and NT commented on the lack of a socio-economic impact assessment study to support the draft Bill’s motivation. ASISA, SAICA, BATSETSA and IRFA said the amendments to the Bill are not comprehensive, it has no clear indication of the criteria for the loan scheme and the procedure to be followed if the member were to default on the loan. NT, IRFA and BATSETSA expressed that the bill would be administratively burdensome for the Boards of pension funds, South African Revenue Services (SARS) and the Financial Sector Conduct Authority (FSCA). The loan scheme could also result in significant contingent liabilities for pension funds.  NT, ASISA, COSATU, SAICA, IRFA and BATSETSA all raised concerns about the tax implications of using the guarantee for up to 75% of a members’ fund assets and for a withdrawal of funds form the retirement fund. NT proposed an alternative way forward in which it will introduce appropriate amendments through the Financial Sector Laws General Amendment Bill within the next 12 months. COSATU said it supports the bills, however, it requires amendments to address certain weaknesses.

Ms Ntlokwana said the submissions made were on policy issues, no legal issues were raised and therefore no legal inputs could be made.

(See document)
 
Response


Dr D George (DA) said there has been confusion around pension fund reform. It is a complex issue that has been discussed over a long time. The Department of Social Development (DSD) has published a green paper on a national social security fund, which would have significant implications for retirement annuities. He requested that pension fund reforms be considered with this backdrop, as it is not a precise science.
He replied that the Bill is not proposing changes to Income Tax Act. The Bill has been proposed in the context of a pandemic with severe economic conditions and people being in a state of need when it comes to resources. The issue of retirement annuity funds cannot be addressed as it has a separate process but it is doable. The concern with increased contingent liabilities for retirement funds is not an actual problem since members will not be withdrawing from the pension fund but using it as surety for a loan. If the member defaults, then there will have to be a payment from the fund. However, there should be qualification assessments and limitations before the loan is given, to ensure that that the value of the loan does not deplete the member’s retirement fund or put it into peril. The same applies for the liquidity concerns around the fund.

The Bill is a sensible contribution that has been misunderstood. Much of the publicity on the Bill revolves around the argument that most people will default and collapse the entire retirement and asset industry. It is a strawman argument. The argument that the loan scheme would only benefit a few contradicts the argument of it potentially disrupting the entire retirement fund system. It is true that the loan facility will not benefit everyone because not everyone will get a loan. The bill is narrowly focused with the intention of allowing members to leverage their own assets for a loan in a difficult time, for their benefit. It will not deplete their assets as it will be repaid. It serves as a step in helping people and does not necessarily solve all the economic issues during this period.

The administration cost can be resolved technically, either by being factored into the loan or factored into administration. Feedback from the industry is that it is possible, despite the difficulties that were pointed out.  

He agreed that the 75% loan limit is too high for several reasons. He proposed amending the bill to have a B-bill and with a new loan facility limit of 30% of the fund and cater for a once-off loan. He added that it is patronising and offensive to assume that all individuals will be reckless with the provision of the loan facility.

The Chairperson asked for clarity on the procedure for amending the Bill to limit the loan facility to 30%.

Ms Ntlokwana replied that the next step would be a motion of desirability on the Bill by the Committee. If the Committee agrees with the changes and goes forward with the processing of the Bill, then the proposed changes will be included in the Bill.

Dr George requested clarity on the new Minister of Finance’s view of the Bill.

Mr G Skosana (ANC) said the intentions of the Bill are good given the current economic difficulties and the pandemic. He noted the policy concerns and tax implications raised by stakeholders. He proposed that Dr George be given an opportunity to review each of the concerns raised and respond to each submission. Thereafter, the Committee can consider the comments and Dr George’s responses and make a decision on how to move forward with the Bill.

The Chairperson asked Dr George if he would like the new Minister of Finance to share his view on the matter of withdrawals and on the bill with the Committee.

Dr George said he raised the matter because there is still time for a B bill, and so amendments can be factored in without disrupting the legislative process. Treasury and COSATU mentioned catering for withdrawals. If the Committee decides to cater for withdrawals, then there is still an opportunity to include it in the B bill.

Mr Ismail Momoniat, Deputy Director General: Tax and Financial Sector Policy, NT, said there are several discrepancies around the Bill and Treasury is not sure that the passing of the bill will make any real difference. Dr George has not responded to all the concerns with supporting figures and has only responded to some with his opinions. There are already significant cases of abuse with pension-backed home loans.
The fundamental question of how the bill will ensure the primary objective of a retirement fund is not undermined, has not been answered. The primary objective of retirement funds is to help people have sufficient savings for retirement. Retirement funds are long-term investments and allowing members to cash-in on the fund affects its growth prospects and also has tax implications. The bill lacks impact indicators such as a socio-economic impact study. 

NT released a statement shortly after Mr Enoch Godongwana became Minister of Finance. It is not looking at loans but very limited withdrawals instead. Treasury is close to reaching an agreement with various stakeholders, such as unions and funds, on a proposal to allow for limited withdrawals, whilst maintaining some preservation. The proposal is to implement a two-pot system. For instance, 80% of a member’s monthly contributions will go towards the first pot, which consists of totally preserved funds that will not be accessible for withdrawal before retirement. The second pot is made up of 20% of a member’s monthly contributions, and will be accessible for limited withdrawals under certain circumstances. The allowance for immediate withdrawals would have to be limited and conditional on circumstances, as it poses a great risk to wiping out retirement fund savings. The system might require amendments to the Money Bill and there are a few outstanding consultations to agree on its technical requirements. However, Treasury will bring the proposal forward by the Medium Term Budget Policy Statement (MTBPS). He pleaded with Dr George to hold off on his Bill and wait until NT publishes its proposal, which the Minister supports, and then the Committee can make its decision.

Dr George emphasised that the money is not withdrawn from the fund, it is surety for a loan. A loan differs from a withdrawal as it has to be repaid. When giving the loan, there has to be a qualification assessment like with home loans, to ensure that there is reasonable possibility of repayment. The argument that money will come out of the fund and the fund system will collapse is technically wrong. He acknowledged that the task before Treasury is difficult, hence the matter has been on the table for years. He was not open to waiting for Treasury’s proposal to cater for withdrawals under certain conditions, as the two are different. He was open to discussing the matter with Treasury, however, but he would like to proceed with the processing of the bill.

Mr Momoniat said that conceptually, to borrow against a retirement fund means the fund has to make the member’s money available instead of investing it and getting growth on it. No details are given on what processes will be followed when there is a default and on the tax implications. These essential details need to be legislated. The Bill is flawed because it lacks an explanatory memorandum and a technical sheet to support it. It poses a great risk to the retirement system, and there is already an abuse of pension-backed home loans.

Dr George clarified that a member does not take the loan from the fund The borrower, who is a member, loans from a bank or lender and the pension fund acts as surety for the loan. It would be a fully guaranteed loan thus members can benefit from lower interest rates. The loan would therefore not require a disinvestment of the pension savings as the fund is not touched. It is the same as how mortgage loans work.

Ms D Mabiletsa (ANC) said the Bill is progressive but there are still concerns around its implications. She asked what would happen if a member were to default on loan repayments, and fail to repay the loan before retiring.

Dr George replied that if a member fails to make repayments then the loan defaults. However, there are several steps in-between to mitigate this risk of defaulting. Firstly, the fund will decide on whether it will make sureties available. Thereafter, members will have to be assessed to see if the borrower will be able to repay the loan. COSATU’s concerns around the size of surety are sensible when considering the possibility of defaults and will be factored-in.

The Chairperson suggested that the Committee continue with the processing of the bill, as prescribed in Parliamentary procedure. Delaying the processing of the bill might lead to litigation. Members will make a decision on the Bill, in line with the mandate of their respective political parties.

Closing remarks

The Chairperson, in closing, thanked everyone in attendance. 

The meeting was adjourned.

 

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: