You’ll get to use 75% of your pension to cover a loan – for any purpose – if the DA gets its way
- South Africans need to be able to leverage their pension savings to get through Covid-19, says Democratic Alliance MP Dion George.
- He pans to put forward an amendment the Pension Funds Act that would allow funds to guarantee loans for their members.
- The guarantee could be for up to 75% of your pension savings.
- But the draft Bill makes no mention of the coronavirus, has no time limit for such loans, and does not specify what loans may be used for.
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Right now there are three ways for South Africans to access money from their pension funds before retirement: cash it out under very specific circumstances, such as when changing jobs and money goes into a preservation fund (and take a big tax hit); emigrate, which allows access to money in a retirement annuity, or get the pension fund to underwrite a home loan.
But that will change dramatically if Democratic Alliance MP Dion George has his way.
On Friday George formally announced his intention to introduce the Pension Funds Amendment Act, 2020, in Parliament. The change in legislation was necessary, he said, because of the coronavirus.
"The unfortunate outbreak of the Covid-19 pandemic in the Republic has severely impacted the already crippling South African economy and has led to many South Africans becoming financially destitute," reads the description of the amendment. So the new law will seek "to allow pension fund members to obtain a loan, secured by a guarantee from a registered pension fund, to alleviate financial pressure during an emergency such as the Covid-19 emergency or any other emergency similar to Covid-19."
But the draft of the law the Democratic Alliance provided on Tuesday makes no mention of Covid-19, or of an emergency. It proposes adding just 61 words to the existing legislation, reading:
A registered fund may, if its rules so permit and subject to prudential standards, furnish a guarantee in favour of a person other than the fund in respect of a loan granted or to be granted by such other person to a member, which guarantee may not exceed 75 per cent of that member’s share in the value of the fund.
The effect of the change would be to give South Africans - who can get their pension fund to alter their rules - access to a big chunk of their savings, for any purpose, at any time, through loans that can be offered by any institution, on any terms that institution sees fit to offer.
With such a guarantee, loans are likely to be cheap, more on the order of home loans than riskier personal or business loans.
That is the point, says George.
"Lending institutions will be enabled to offer loans to pension fund members at competitive interest rates and over extended or deferred payment periods given that the loan is fully guaranteed."
The ANC has long floated various ways to harness pension savings for infrastructure investment, while many have called for individuals to get some kind of access to their pension savings during the coronavirus disaster.
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