Among the proposals currently on the table are raising the official retirement age from 60 to 65 and introducing an option for early retirement from the age of 55, though with financial penalties for those who choose to exit the workforce early.
Government officials argue that the reforms are necessary in response to two key challenges: people are living longer, and the financial strain on pension funds is becoming more severe. While the proposed changes are aimed at strengthening the long-term sustainability of the system, they have also sparked concern and confusion among those nearing retirement age.
Bryan Hirsch, a retirement planning expert and Director at Bryan Hirsch Colley & Associates, says the move to extend working years is not entirely surprising, given current trends. He points out that many South Africans are still forced to retire before 65, often by company policy, despite increased life expectancy. “Just yesterday, I attended a 100th birthday celebration. That tells you everything you need to know about how long people are living today,” he said.
According to Hirsch, one of the biggest risks retirees face is inflation eroding the value of their savings over time. “If you retire at 55 instead of 65, that’s ten more years your money has to stretch. Many people don’t realise how difficult that is, especially when they adopt a conservative investment approach at retirement.”
He believes there will be resistance to the proposed changes, particularly from labour unions. “I’m not sure these reforms will take effect exactly as proposed. You can’t suddenly change the rules for someone who is 61 and has planned to retire in two years. There’s going to be pushback.”
Another issue, according to Hirsch, is the lack of public understanding around recent changes to the pension system, particularly the new two-part retirement system introduced in September last year. He believes the system has reintroduced complications that SA tried to eliminate in the 1990s. “People don’t fully understand what this new structure means. It’s adding to the confusion, especially for workers and retirees who need clarity now more than ever.”
When it comes to pension fund deficits, Hirsch says there are multiple factors involved. Poor investment returns have played a significant role, especially in defined contribution funds where the final payout depends on how well the money has been invested. He adds that defined benefit funds, like the Government Employees Pension Fund, guarantee a fixed payout, regardless of how markets perform, which has placed additional pressure on the state.
Investment restrictions have also held SA funds back, though recent regulatory changes have eased limits on how much can be invested offshore. Still, Hirsch notes that many funds are not achieving the returns necessary to meet future obligations.
Perhaps most worrying, he says, is the growing problem of employers failing to transfer pension contributions deducted from employees’ salaries. “It’s criminal, frankly. If you don’t pay your value added tax or pay as you earn, there are serious consequences. But when companies fail to pay pension contributions, the response hasn’t been nearly strong enough.”
The impact of these missed payments is twofold. Members may receive incorrect benefit calculations, and more critically, the untransferred funds miss out on potential investment returns, weakening the fund’s ability to grow.
As the government moves ahead with its proposed reforms, there are still many unanswered questions. Hirsch cautions that while the intention may be to future-proof the pension system, any policy changes must be handled carefully, especially for those already nearing retirement.
For South Africans planning their financial future, he advises staying informed and seeking professional advice to understand the potential effects these reforms could have on their retirement plans.
--ChannelAfrica--
