Picture: GALLO IMAGES/FOTO24/LOANNA HOFFMAN
Picture: GALLO IMAGES/FOTO24/LOANNA HOFFMAN

IN the debate over the changes to pension funds administration arising from the Taxation Laws Amendment Act, both sides make reasonable points.

The government and those who support the legislation want to preserve pension fund members’ savings for retirement, which the experts agree is the right thing to do.

On the other hand, the unions in particular, are concerned that amending the Income Tax Act to prevent people from taking lump sums when exiting their funds is an attempt by the nanny state to hijack workers’ savings.

A historical perspective could be useful. When the Pension Funds Act was passed in 1956, employment had a different meaning to what it does today. Until the late ’90s, employment usually meant a life-long occupation with a single employer, or at most, two or three. There was no expectation of getting access to pension funds during your working years, and the rules of pension funds were in any event so draconian that there were heavy financial penalties if you resigned or were dismissed.

Pension savings were for retirement, usually accompanied by a gold watch from your employer as thanks for long service.

But employment patterns started to change in the ’90s; employees now expect to change jobs several times during their careers, and as a result, they have more opportunities to access their retirement savings.

Ironically, the government made it far easier for employees to take the cash through a 2001 amendment to the act that introduced what came to be known as minimum benefits and surplus distribution legislation, which removed the penalties imposed on members who withdrew before reaching retirement.

Employees started seeing pension schemes as sources of accessible savings rather than as an inaccessible retirement provision.

To a point, the employees’ views were justified, in that as labour conditions evolved, so did the nature of pension schemes. It is still not compulsory in SA for employers to register their employees with pension funds unless it is specifically included in the collective agreement of a particular industry by the bargaining council and the sectoral determinations of the Department of Labour.

What was considered a gratuitous perk has become part of most salary packages and is now included in the total "cost to company". Employees tend to see pension benefits as deductions from their salaries and, therefore, personal savings.

It is in this light that the current debate is raging. The government believes it is correcting an erroneous attitude that has developed towards retirement benefits. Unions and their members object to being told what to do with their money, especially when all they want to be able to do is pay down debt and alleviate hardship.

From the heat of the debate and threats of boycotts and protest marches, it would appear that the horse has bolted. The two sides are talking past each other, and both are convinced they are in the right.

Some time ago, it was suggested that the absence of a savings culture in the country should be tackled through the introduction of a national savings scheme, but the idea was unfortunately still-born, apparently due to interdepartmental wrangling between the Treasury and the Department of Social Services regarding who should be the custodian of the scheme.

Whether the government would have been able to sell the idea of a further deduction from employees' salaries to the unions — over and above the current deductions of tax, unemployment insurance, pension, medical aid and others — is a moot point. In some respects, employees were better off when they were given their wages in an envelope every fortnight, to spend as they liked, and on reaching retirement, received a meagre gratuitous pension from their employer.

Anyway, that genie is long out of the bottle.

• Ramabulana is an advocate employed by the office of the pension funds adjudicator. He writes in his personal capacity