Picture: THINKSTOCK
MOST employees would not mind being compelled to join a pension or provident fund, provided it is not a government vehicle.
While broad-ranging retirement reforms are still two years away from becoming law, the Old Mutual Corporate Auto-Enrolment Report revealed on Thursday that two-thirds of South Africans without a pension or provident fund liked the idea of being automatically enrolled in a fund, but wanted the freedom to choose their investments.
In July the National Union of Mineworkers threatened to strike if changes to the law prevented members from accessing their pension money.
"This is nothing like e-tolls, which faced opposition. People are aware they need to save more," Old Mutual’s GM for corporate solutions, Craig Aitchison, said on Thursday.
One of the respondents to the survey, a full-time male employee in the 40-45 age bracket, said he did not support a government-run fund because "government is totally untrustworthy".
One of the proposals on the table is for legislation that will make it compulsory for every employee who does not belong to a fund, to belong to a government-sponsored fund.
Another is for the fund to be selected by employers when they employ someone, and a third proposal is for a national pension fund to which everyone belongs.
Debate continues to rage over whether people should be allowed to opt out of their selections, but respondents in the survey surprised industry analysts when as many as 51% said they should not be allowed to opt out.
"On the one hand I’m surprised at the numbers," FQ Financial Skills manager Bruce Kokkinn said. "But when you see union funds like the mineworkers’ provident fund, and others like the National Education, Health and Allied Workers’ Union fund, people are drawn to them. There is a sense of belonging and that the fund is above suspicion of government interference."
The Old Mutual survey was conducted across a sample of 809 workers and when asked which fund they would be more likely to join, 49% selected an employer-sponsored fund, with only 15% choosing the government-sponsored option.
Mr Aitchison said more South Africans were aware they were not doing enough to save for retirement, but were struggling to contribute more.
While one-third of consumers said they should be contributing more than 15% of their salary to a pension fund, only 10% felt they were in a financial position to make this commitment.
The research highlighted consumers’ strong interest in having a say and some control over their fund, with 66% of respondents stating that the employee and employer should jointly decide on fund investments.
Tax changes affecting retirement are on their way next year as one of the first major reforms to take effect. From March 1, employer contributions to retirement funds will be included in employees’ salary packages and taxed as a fringe benefit. Members can, however, receive a tax deduction on contributions to an approved fund of up to 27.5%, but with an annual ceiling of R350,000. Pension and provident fund rules will be consolidated, preventing wholesale withdrawal of lump sums.
Mr Aitchison said an incremental approach to retirement changes was likely to continue, as social security reforms, for example, would also be made
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