PENSION RUMOURS

(This aticle originally appeared on 13 August 2014 under "Editors Choice" on the Home page of this website)

 

Ignore the rumours – your Government Employees Pension Fund (GEPF) gratuity is not affected.

The government’s proposals are aimed at private sector provident funds and have nothing to do with GEPF gratuities

The GEPF is NOT  a provident fund.

The government’s proposals intend to align provident fund benefits to those of pensions and retirement annuity funds at retirement.

 

Download the GEPF statement issued in August 2014 click here

Over the past few months NAPTOSA has received numerous enquiries regarding pension rumours that public servants, including educators, will lose their gratuities. NAPTOSA (Gauteng) addressed this issue in News Flash 43 of 2014. 

On 9 July 2014, National Treasury issued a press statement dispelling the rumours that from 2015 public servants will no longer receive gratuities upon retirement from the public service. The Government is in the process of formulating proposals regarding pension reform. A few of these proposals have become law. 

The proposed changes have been driven by a number of factors, one of which is that most citizens do not make adequate provision for their retirement. This problem is exacerbated when employees resign and choose to take the cash value of their pension and not transfer the funds into another pension – there is no preservation for a monthly pension. This is particularly the case with members of provident funds, who are permitted to take all their cash when they retire and fail to preserve a portion of their pay-out for a monthly pension.

 

What legislation is changing?
The State pension fund (GEPF) is governed by its own act, called the Government Employees Pension Law. All other pensions in South Africa are governed by separate legislation - the Pensions Fund Act.  The government has indicated its intention to reform pensions governed by the Pensions Fund Act  and NOT to the GEPF at this stage.  National Treasury issued a document on 14 March 2014 entitled “2014 Budget update on retirement reforms”.  This was directed at the Pensions Fund Act (ie private pension funds) and expanded on the government’s intentions regarding reforms of private pensions.

What is government’s proposal on preservation?
There is no intention by government to nationalise workers’ pension/provident funds or to prevent them from accessing their money. Government is proposing measures to encourage workers to keep their savings until retirement and to convert a portion of these funds into a pension at retirement. 

What are the reforms?
According to the statement, certain pension reforms pertaining to provident funds will be effected on 1 March 2015. Currently, members of provident funds can take the entire benefit as a cash lump sum. This will change in 2015, when provident fund members will have to annuitise part of their benefit, although members will not forfeit any existing rights to take the entire benefit as cash. 

Vested rights (i.e. accumulated retirement savings before the new law takes effect) will be protected and limited withdrawals will only be allowed on new contributions made after preservation becomes law.  Members of provident funds will continue to have full access to their savings accumulated prior to 1 March 2015. 

Pension funds (including the GEPF) and retirement annuity funds limit the amount that one can take in cash at retirement to one-third of one’s benefit. One must use the remaining two-thirds of the benefit to buy an annuity. Government is aligning the provident fund benefits with those received from pension and retirement annuity funds.   The GEPF is NOT a provident fund, but a defined benefit pension fund. Members of the GEPF will therefore NOT be affected by these pension reforms

In a nutshell.
The only changes at this stage relate to provident funds with effect from 2015. The purpose of the changes is to preserve a portion of the provident fund as a pension (annuity) - the Government’s intention is to prevent members of provident funds from cashing in the full amount of their pension. The members’vested interest in the provident fund is protected.
There are no changes to the GEPF gratuity.

For more information:

Download the National Treasury Press Statement  click here

Download the FAQs issued by the National Treasury click here

Download the GEPF statement issued in October 2013 click here

Download the GEPF statement issued in August 2014 click here

Read the statement on SA News: No plans to nationalise  pension funds  (13 Aug 2014):  click here

Read the DBE statement  Proposed Retirement Reforms ensure better protection for pension fund members. (13 Aug 2014) click here