With the effects of COVID-19 on cash strapped consumers, some have expressed interest in dipping into their pension fund to overcome the financial challenges they are facing. The Retirement Funds Act does not allow members to withdraw money from their pension funds, but there have been growing calls from labour and various organisations for cash-strapped consumers to have access to their pension money.
Currently, Retirement Fund members can only get a loan guarantee from their pension funds if they want to buy a house or do renovations.
“There has been proposals put forward to see if members can get money from their pension fund, at the moment there is a proposal before Parliament to discuss the terms and conditions,” says Head of Corporate Consulting Strategy at Alexander Forbes, Belinda Sullivan.
If you utilise your pension fund as surety to buy a house you could get a favourable interest rate. But if you have a bad credit record the chances of securing the loan are slim. And if you default on your home loan repayments, your pension money will be used to settle your home loan.
“The bank has to assess in terms of the NCA whether the member can afford the loan repayment and has a bad credit rating,” says Sullivan.
Many employed people do no preserve their pension fund when they change jobs. This has been identified as one of the main reasons South Africans do not have sufficient funds for retirement.
“And the big problem is that they have not preserved their withdrawal benefits, anything you take out has an impact on your retirement savings,” says Financial Adviser, Bryan Hirsh.
Cash-strapped consumers want to access their retirement funds:
Saving experts encourage consumers to have an emergency fund that covers at least six months of their salary in order to alleviate financial pressures.
Retirement fund members can only withdraw from their pension funds when they retire, get retrenched, or resign. And if you have a retirement annuity – you can only make a withdrawal at the age of 55.
“Now the law has changed regarding retirement annuities were previously you could withdraw previously under R7 000,” says Hirsh.
Experts say only about 6 % of South Africans are likely to retire comfortably and one needs to save as much as they can to ensure that they retire comfortably. They recommend paying off unsecured debt and home loan prior to retirement to improve your prospects of retiring comfortably.